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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

(Mark One)

[X]   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934
      For the fiscal year ended December 31, 2007

[_]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934
      For the transition period from ______________ to________________

                         Commission file number 0-303000

                                       ZAP
                 ----------------------------------------------
                 (Name of small business issuer in its charter)

           California                                    94-3210624
---------------------------------              ---------------------------------
  (State or other jurisdiction                        (I.R.S. Employer
of incorporation or organization)                    Identification No.)

501 Fourth Street, Santa Rosa California                   95401
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(Address of principal executive offices)                (Zip Code)

Issuer's telephone number                             (707) 525-8658

Securities registered under Section 12(b) of the Exchange Act:

Common Stock, no par value                                OTC BB
------------------------------                 ---------------------------------
Title of Each Class                            Name Exchange on Which Registered

Securities registered under Section 12(g) of the Exchange Act: None

Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act. Yes [ ] No [x]

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [_]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

State issuer's revenues for its most recent fiscal year $5,712,000

The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant as of April 8, 2008 was $25,701,300 computed
by reference to the price at which the registrant's Common Stock was last traded
on that date.

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date 59,233,233 shares of Common Stock, no
par value, outstanding as of April 8, 2008.

                       DOCUMENTS INCORPORATED BY REFERENCE

If the following documents are incorporated by reference, briefly describe them
and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated: (1) any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The listed
documents should be clearly described for identification purposes (e.g., annual
report to security holders for fiscal year ended December 24, 1990).

Transitional Small Business Disclosure Format (Check one):  Yes [_]  No [X]
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                                TABLE OF CONTENTS

ITEM NO.                                                                 PAGE
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PART I
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ITEM 1.   DESCRIPTION OF BUSINESS...........................................  4

ITEM 2.   DESCRIPTION OF PROPERTY........................................... 16

ITEM 3.   LEGAL PROCEEDINGS................................................. 17

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............... 18

PART II
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ITEM 5.   MARKET FOR COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND SMALL
             BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES................. 19

ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION......... 20

ITEM 7.   FINANCIAL STATEMENTS.............................................. 29

ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
             ACCOUNTING AND FINANCIAL DISCLOSURE............................ 57

ITEM 8A.  CONTROLS AND PROCEDURES........................................... 57

ITEM 8B.  OTHER INFORMATION................................................. 58

PART III
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ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
             COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.............. 58

ITEM 10.  EXECUTIVE COMPENSATION ........................................... 61

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
             AND RELATED STOCKHOLDER MATTERS ............................... 65

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................... 66

ITEM 13.  EXHIBITS.......................................................... 69

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES............................ 72

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                                     PART 1

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This annual report on Form 10-KSB and the documents incorporated by reference
herein contain forward-looking statements that are not statements of historical
fact and may involve a number of risks and uncertainties. These statements
relate to analyses and other information that are based on forecasts of future
results and estimates of amounts not yet determinable. These statements may also
relate to our future prospects, developments and business strategies.

We have used the words "anticipate," "believe," "could," "estimate," "expect,"
"intend," "may," "will," "plan," "predict," "project" and similar terms and
phrases, including references to assumptions, in this annual report on Form
10-KSB and our incorporated documents to identify forward-looking statements.
These forward-looking statements are made based on expectations and beliefs
concerning future events affecting us and are subject to uncertainties and
factors relating to our operations and business environment, all of which are
difficult to predict and many of which are beyond our control, that could cause
our actual results to differ materially from those matters expressed in or
implied by these forward-looking statements. The following factors are among
those that may cause actual results to differ materially from our
forward-looking statements:

          o  general economic and industry conditions;
          o  our history of losses, deficits and negative operating cash flows;
          o  our limited operating history;
          o  industry competition;
          o  environmental and government regulation;
          o  protection and defense of our intellectual property rights;
          o  reliance on, and the ability to attract, key personnel;
          o  other factors including those discussed in "Risk Factors" in this
             annual report on Form 10-KSB and our incorporated documents.

You should keep in mind that any forward-looking statement made by us in this
annual report or elsewhere speaks only as of the date on which we make it. New
risks and uncertainties arise from time to time, and it is impossible for us to
predict these events or how they may affect us. We have no duty to, and do not
intend to, update or revise the forward-looking statements in this annual report
after the date of filing, except as may be required by law. In light of these
risks and uncertainties, you should keep in mind that any forward-looking
statement made in this annual report or elsewhere might not occur.

In this annual report on Form 10-KSB the terms "ZAP," "Company," "we," "us" and
"our" refer to ZAP and its subsidiaries.

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ITEM 1.   DESCRIPTION OF BUSINESS

GENERAL

ZAP stands for Zero Air Pollution(R). With its new product offerings, the
Company is positioned to become a leading brand and distribution portal of
electric and other advanced technology vehicles. ZAP is committed to running its
business based on a strong philosophical foundation that supports the
environment, social responsibility and profitability.

ZAP's strategy is to serve the growing and underrepresented consumer that seeks
electric and fuel efficient vehicles. With the recent increases in the cost of
oil and increasing concern about the environment and the effects of global
warming, we believe there is a large and untapped demand in the areas of
transportation and consumer products. During the energy crisis of the 1970s,
Japanese automobile manufacturers penetrated the United States market when
domestic automobile manufacturers failed to anticipate changes. ZAP believes a
similar opportunity is present today, enhanced by heightened environmental
awareness, climate changes and economic pressures. ZAP has assembled a complete
line of products to meet the growing demands of the environmentally conscious
consumer focused on two primary businesses: ZAP Automotive and ZAP Power
Systems.

ZAP was incorporated as "ZAP Power Systems" under the laws of the State of
California on September 23, 1994, and we changed our name to ZAP on June 18,
2001. Our principal executive offices are located at 501 Fourth Street, Santa
Rosa, California, 95401 and our telephone number is (707) 525-8658.

SUBSIDIARIES

We have the following wholly owned subsidiaries : Voltage Vehicles, a Nevada
company ("Voltage Vehicles"), RAP Group, Inc., a California company ("RAP
Group"), ZAP Rental Outlet, a Nevada company ("ZAP Rentals"), ZAP Stores, Inc.,
a California company ("ZAP Stores"), ZAP Manufacturing, Inc., a Nevada company
("ZAP Manufacturing") and ZAP World Outlet, Inc., a California company ("ZAP
World"). RAP Group was engaged primarily in the sale and liquidation of
conventional automobiles; Voltage Vehicles is engaged primarily in the
distribution and sale of advanced technology and conventional automobiles; ZAP
Stores is engaged primarily in consumer sales of ZAP products and ZAP
Manufacturing is engaged primarily in the distribution of ZAP products. ZAP
World Outlet and ZAP Rental Outlet are not currently operating subsidiaries. RAP
Group and Voltage Vehicles were acquired by the Company in July 2002. On October
1, 2006, the RAP Group surrendered its Dealer Vehicle License and ceased
operations. A new Electric Vehicle Dealership opened on the old automobile lot
location. All subsidiaries are 100% owned by ZAP.

BUSINESS DEVELOPMENT

Founded in 1994, ZAP has invented, designed, manufactured, and marketed numerous
innovative products since the Company's inception. In 1995, ZAP began marketing
electric transportation on the Internet through our website, www.zapworld.com.
ZAP has been a pioneer in developing and marketing electric vehicles such as a
zero-emission ZAP(R) electric bicycle, ZAP Power System, which adapts to most
bicycles, and the ZAPPY(R) folding electric scooter. From 1996 through 1998, we
continued to add to our product line; in 1999, ZAP added electric motorbikes; in
2001, it added electric dive scooters; in 2003, ZAP announced its first electric
automobiles, including the first-ever production electric automobile imported
from its manufacturing partner in China; in 2004 ZAP introduced electric
all-terrain vehicles and the fuel-efficient Smart Car; and in 2005 ZAP
introduced multi-fuel vehicles, capable of running on ethanol and/or gasoline.
To date, we have delivered more than 100,000 electric vehicles and consumer
products to customers in more than 75 countries, which we believe establishes us
as one of the leaders in the alternative transportation marketplace.

Today, ZAP is continuing its focus as one of the pioneers of advanced
transportation technologies and leveraging its place in the market as a magnet
for new technologies. The Company believes there is a growing and
underrepresented market for fuel efficient transportation vehicles and we are
capitalizing on the opportunities, enhanced by heightened environmental
awareness, climate changes and economic pressures. The technology is available
to deliver transportation solutions that are practical and affordable. With our
products such as the XEBRA and ZAPPY 3, ZAP is already delivering such solutions
to the market. Our goal is to become one of the largest and most complete brand
and distribution portals in the United States for advanced technology vehicles.

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To distribute our practical, affordable and advanced transportation
technologies, we have established and are growing both our portal of qualified
automotive dealers and our relationships with specialty dealers/distributors for
our power system products. Through these distribution channels, coupled with the
continued establishment of partnerships with select manufacturers, we intend to
expand our market recognition by building awareness of the evolving technologies
available for automotive transportation and in reducing our nation's dependency
on foreign oil.

PRODUCT SUMMARY

Our existing product line, which includes completed, market ready products and
planned introductions, is as follows:

ZAP AUTOMOTIVE
--------------

ZAP believes it is positioned to become one of the leading distributors of fuel
efficient alternative energy vehicles in the United States. We believe that we
are one of only a few companies distributing a 100% production electric vehicle
capable of speeds up to 40 mph in 2007. Within the next twelve to thirty-six
months, we hope to have distribution agreements in place with three to four
vehicle manufacturers whose products fit ZAP's mission. To distribute our
product to end consumers and fleets, we have established more than 30 licensed
automotive dealers and intend to grow this base significantly over the next
several years.

In 2006, ZAP Automotive introduced the following automobile products:

          o  the 100% electric XEBRA sedan with an MSRP of approximately
             $11,000;

          o  the 100% electric XEBRA utility vehicle truck with an MSRP of
             approximately $11,200; and

          o  the Smart micro-car with an MSRP of approximately $25,000 (no
             longer distributed after September 30, 2006 due to interference
             from Daimler Chrysler).

In 2007, ZAP Automotive introduced a new electric scooter, the ZAPINO, with an
advanced 3,000 watt brushless DC hub motor, perfect for city commuting and able
to reach speeds of 30 MPH with an MSRP of $3,000.

Our future offerings that are currently in the developmental stage include:

          o  the OBVIO 828, an economy micro-car from Brazil with an estimated
             MSRP of $16,000,

          o  CNG and Electric busses

          o  the ZAP-X, a 100% electric vehicle which will use Lotus
             Engineering's Aluminum Performance Crossover ("APX") design.

          o  The ZAP Alias, which has a target price of $32,500 per vehicle and
             an estimated range of 100 miles per charge. This vehicle launch
             date is for 2009.

We are also in discussions with other foreign manufacturers and hope to
establish additional relationships within the next twelve to thirty-six months
for other vehicle platforms.

XEBRA

We believe that XEBRA is the only series production electric vehicle in the
United States that can legally travel faster than 25 mph. The car's suggested
retail price of $11,000 is significantly less expensive than most of its
competitors, some of which cost more than $100,000 and are not yet widely
available today. XEBRA has three wheels and is being imported as a motor-driven
cycle, yet, unlike most other motor-driven cycles, the XEBRA is enclosed with
windows and a roof, affording it protection from inclement weather.

Working with our Chinese manufacturing partner, we have designed two XEBRA
models: a sedan and a utility pick-up truck. The Chinese manufacturer's current
manufacturing capacity is approximately 1,000 vehicles per month. Subject in
large part to the level of financing secured, our current target is to
distribute approximately 200 vehicles per month over the next 12 months. Initial

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market demand has been strong, both from end consumers using the vehicle as a
"city-car" and from fleet managers of municipalities, states, green friendly
corporations, and universities who have a preference or mandate to purchase zero
emission vehicles.

We are working closely with our manufacturing partner to continually upgrade the
XEBRA, adding features while balancing the goal of maintaining an affordable
price level. We are in the process of looking into incorporating options to
enhance the consumer's experience, including providing lithium battery packs for
additional (up to 100 mile) range and solar panels for low cost and true zero
air pollution charging. Solar options were introduced in the current quarter.

XEBRA Sedan (ZAPCAR (R))

ZAP launched the sedan version of its XEBRA ZAPCAR on July 11, 2006. The sedan
has a seating capacity for four and is being targeted for city/commuter use.
Based on initial feedback, ZAP will be marketing the XEBRA sedan to government
and corporate fleets as well as to families with two or more cars, but with
plenty of occasion to use their vehicles for short, city drives.

XEBRA PK ( ZAPTRUCK(R))

ZAP launched its utility pick-up truck version of the XEBRA, the XEBRA ZAPTRUCK,
on August 24, 2006. This electric vehicle seats two with a multi-purpose
platform behind the passenger compartment that serves as a hauler, dump truck or
flatbed. The XEBRA ZAPTRUCK is targeted to municipalities, maintenance
facilities, universities, ranches and warehouses. Since its launch, we have
received overwhelming inquiries for test drives. To date, we have focused on our
west coast market and sales have exceeded our initial distribution and sales
plans.

Smart Car

The Smart Car was our initial automotive product. The project provided us with
an excellent entry level opportunity in the micro-car market in the United
States and confirmed our belief that there is a sizable demand for smaller, more
fuel efficient (or alternatively fueled) vehicles. The Smart Car was
manufactured by Daimler Chrysler, who we believe failed to identify the United
States as a potential market. In Daimler Chrysler's absence, we contracted with
a third party unaffiliated with Daimler Chrysler to have the Smart Car imported
and "Americanized" to meet the growing demand for micro-cars. The process of
Americanizing the Smart Car involved having the car modified to meet all Federal
Motor Vehicle Safety Standards, United States Department of Transportation
requirements, and Environmental Protection Agency regulations and applicable
state requirements.

We proved that we could introduce and sell the Smart Car Americanized by ZAP
took purchase orders for tens of thousands of vehicles and received a credit
line of $425 million to purchase them. We consequently sold approximately 300
Smart Cars, but due to the legal conflict with Daimler-Chrysler and others, and
the uncertainty of auto supply, we discontinued distribution of the Smart Car in
September of 2006.

OBVIO!

In September 2005, we entered into an exclusive (in North America) distribution
contract with the Brazilian automobile manufacturer OBVIO! for the future
importation of two models of micro-cars - an economy 828 model and a full
performance 012 model. The cars will have butterfly doors, seating capacity to
accommodate three persons, up to 250 horsepower output and accessories such as
iMobile and air conditioning. This car will function on multi-fuel technology,
meaning they will have the ability to be powered by ethanol, gasoline, or any
combination thereof. We are also working with OBVIO! to produce a 100% electric
version. Although the prototype was completed, we are awaiting a firm production
schedule from the manufacturer.

LOTUS

In 2007, we announced and entered into a development contract with Lotus
Engineering to develop a electric all-wheel drive crossover high performance
vehicle for the U.S. market. A combination of the lightweight aluminum vehicle
architecture, a new efficient drive and advanced battery management systems is
intended to enable a range of up to 350 miles between charges, with a rapid
10-minute recharging time. An auxiliary power unit is planned to support longer
distance journeys.

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The ZAP-X is proposed to be powered by revolutionary in-hub electric motors,
delivering 644 horsepower in all wheel drive mode, theoretically capable of
powering the ZAP-X to a potential top speed of 155mph. A new, strong,
lightweight and highly efficient structure based on the Lotus technology is
planned to give the car a very attractive power-to-weight ratio. We are in the
midst of the development plan for the ZAP-X.

We are also developing a $32,000 all electric vehicle with a targeted 100 mile
range, the ZAP Alias (TM), which is expected by 2009.

Future Automotive Offerings
---------------------------

Over the next 36 months, we hope to establish relationships with two to four
additional manufacturers who can supply automobiles and related vehicles that
meet our mission of affordable, advanced transportation technologies that are
socially responsible and environmentally sustainable. In 2007, we have
identified the following products as potential future offerings for the Company:
(1) an affordable 100% electric two-seater sports coupe; (2) a high performance
highway all electric vehicle, (3) electric busses and (4) electric trucks.

ZAP Power Systems
-----------------------

We launched the Company in 1994 with the invention of the ZAPPY electric scooter
and quickly established a presence as one of the market leaders in the electric
"personal" transportation product segment. Since inception, the Company has been
able to maintain a steady business and committed buyers in this segment. In
keeping with our initial product offerings, at the beginning of 2006, we
revitalized our consumer products line (recently renamed "Power Systems"),
including an updated version of the electric scooter. As part of the segment's
revitalization, we reduced the number of suppliers and placed more emphasis on
upgrading existing models with newer component technology and more robust
features in order to provide a higher quality consumer experience and product.

Our current product offerings include:

          o  Three-wheeled personal transporters (ZAPPY3, ZAPPY3 Pro, ZAPPY3
             EZ);
          o  Off-road vehicles (electric quads and motorcycles); and
          o  Portable energy (universal recharge-it-all batteries and auxiliary
             batteries).

The ZAPPY3 Personal Transporters

Segway's highly publicized "human transporter to change the world" unearthed a
growing need for a "scooter for adults," better known as personal electric
transportation. The Company responded to this demand by designing the ZAPPY3.
Unlike the Segway, the ZAPPY3's 3-wheeled vehicle design provides stability and
maneuverability allowing just about anyone to ride this vehicle without
training. It has a top speed of 15 mph, and the Pro has the farthest range of
any personal transporter available today at 25 miles range per charge.

The Company initially thought that the ZAPPY3 would be great for the consumer
market. Over the past year, the Company has revisited its sales strategy and
come to recognize that the largest market opportunities are in the industrial
and commercial applications. The Company's primary sales channels are now more
clearly defined as security, sporting goods and material handling.

With the increased emphasis on homeland security, there are several product
competitors in the security and police market segment. Segway, the most well
known, can be found in select police departments and airports and sells for
about $5,500. American Chariot, which is a chariot-like transporter, has entered
the market selling between $1,500 to $2,500. Newest to the security transporter
business is T3Motion, which is built like a small tank and priced at up to
$8,000. The ZAPPY3 meets the need of a majority of the security transportation
needs and with an selling price range of $530 to $900, depending on the model
purchased, which we believe is the most economical of all offerings.

The ZAPPY3 retail focus has continued strong in 2007. As the product line has
gained momentum and market

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acceptance, we plan to grow distribution in the retail channel through larger
regional and specialized chain stores.

The material handling, warehousing, fabrication, and construction industries are
the ideal markets for the ZAPPY3 Pro. We are not currently aware of any major
competitors in this market. The traditional solution for short distance
transportation has been bicycles. The ZAPPY Pro offers the perfect utility
vehicle for shuttling, picking and packing and getting into small areas like
elevators. While the Company's entrance into this market is still in the early
stages, the product response has been very favorable, demonstrated by our newly
established relationship with Indoff, the largest distributor of material
handling equipment in the United States.

The Zapino is an electric scooter that is a great link between ZAP's personal
transporters and electric cars. Not only economical and eco-friendly, the Zapino
is powerful with an advanced 3000-watt brushless DC hub motor, perfect for city
commuting. Able to reach speeds of 30 MPH, the Zapino is able to keep up with
city traffic without contributing to city pollution. The rear wheel hub motor on
the Zapino creates more room on board for additional batteries and performance.
This innovative drive system eliminates the need for belts or chains with lower
overall maintenance. It also delivers a more enjoyable ride because it is nearly
silent, accelerates smoothly with no shifting, has no engine vibration, no
tailpipe or heat exhaust -- just good, clean fun.

Off-Road Vehicles

All terrain vehicle ("ATV") manufacturers recognized in excess of $5.0 billion
in revenues in 2006 with the market for ATVs. In the United States alone,
approximately 800,000 units were sold in 2006. To date, all of the ATV's on the
market are gas-powered. We believe electric ATV's have practical environmental
benefits over their gas-powered counterparts: they are silent and generate no
emissions. Moreover, there are now over 8,000 organic farms in the United States
which are committed to reducing pollutants that may put organic certification at
risk. The electric ATVs can provide the ruggedness of the traditional ATV in
areas never before accessible, while being more versatile than golf carts.

We entered the electric ATV market in 2006 with our ZAP Buzzz mini ATV. The
Buzzz has a 450 watt geared-motor and a top speed of 15 mph with a range of
approximately 20 miles. In the 1st quarter of 2007, we introduced the 800 watt
"mid size" ATV for sale in the United States and some of our existing ZAP
dealers already have placed preorders. We hope to launch a heavy duty ATV in the
3rd quarter 2008 with product features and styling comparable to existing
gas-models. We believe our position as an innovator in the electric vehicle
market, coupled with first-mover advantage in the electric ATV market, will
allow us to capitalize on this market segment. If we are able to capture 1% of
the all terrain vehicle market share, it could equate to over $40 million in
revenues per year. However, there can be no assurances that we will be able to
achieve such market share.

Portable Energy - Recharge-It -All Batteries

We believe we were one of the first and now one of the leading producers of
rechargeable battery sources using lithium-ion and lithium polymer technology.
Through our Recharge-It-All line, we sell battery packs to power or charge a
wide range of mobile electronics such as cellular phones, digital cameras and
laptops, providing significantly more charge time than currently available
technologies. Our Portable Energy devices fall under two product lines:
universal chargers and made-for iPOD models. The universal chargers are
rechargeable battery packs that extend the use of most small and medium-sized
electronic devices up to 2 to 5 times their normal battery life. The made-for
iPOD models are a series of portable energy devices designed to work
specifically with all the major iPOD products, including the iPOD, iPOD nano,
iPOD shuffle and the iPOD with video.

We launched our Portable Energy products at the end of 2006 with marketing
targeted to large electronic retailers. Market statistics indicate that there
will be over two billion users of mobile electronic devices by the end of 2007.
Our goal with Portable Energy is to provide a solution that helps solve the
energy management challenge for electronic and mobile internet users. Today,
there are only a few companies that have begun to address the mobile device
backup power/charge market. The currently available products include Energizer's
"Energi to Go", Charge 2 Go, Cell Boost, and Medis Power Pack. We believe that
no manufacturer offers rechargeable devices that offer the ability to re-charge
a myriad of electronic devices from the same device as effectively as ZAP's
Portable Energy.

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RISK FACTORS

We have a history of losses and our future profitability on a quarterly or
annual basis is uncertain, which could have a harmful effect on our business and
the value of ZAP's common stock.

Since we began operation in 1994, we have generated a profit only for the three
month period ended September 30, 2006 and not in any other fiscal quarters or
any fiscal year. We incurred net losses of $28.0 million, $11.9 million, $23.5
million for the years ended December 31, 2007, 2006 and 2005, respectively. We
can give no assurance that we will be able to operate profitably in the future.

In each of the thirteen years since we began operations, we have not generated
enough revenue to exceed our expenditures. Since our inception, we have financed
our operations primarily through private and public offerings of our equity
securities. Our planned expenditures are based primarily on our internal
estimates of our future sales and ability to raise additional financing. If
revenues or additional financing do not meet our expectations in any given
period of time, we will have to cut our planned expenditures which could have an
adverse impact on our business or force us to cease operations. Our cash on hand
was $4.3 million on December 31, 2007. Failure to achieve profitable operations
may require us to seek additional financing when none is available or is only
available on unfavorable terms.

WE MAY FACE LIQUIDITY CHALLENGES AND NEED ADDITIONAL FINANCING IN THE FUTURE.

We currently expect to be able to fund our working capital requirements from our
existing cash and cash flows from operations through at least December 31, 2008.
However, we could experience unforeseen circumstances, such as an economic
downturn, unforeseen difficulties in manufacturing/distribution, or other
factors that could increase our use of available cash and require us to seek
additional financing. We may find it necessary to obtain equity or debt
financing due to the factors listed above or in order to support our expansion,
develop new or enhanced products, respond to competitive pressures, or respond
to unanticipated requirements.

We may seek to raise additional funds through private or public sales of
securities, strategic relationships, bank debt, or otherwise. If additional
funds are raised through the issuance of equity securities, the percentage
ownership of our stockholders will be reduced, stockholders may experience
additional dilution or any equity securities we sell may have rights,
preferences or privileges senior to those of the holders of our common stock. We
expect that if we are unable to obtain additional financing on acceptable terms,
we may be unable to pay our debts as they become due, develop our products, take
advantage of future opportunities or respond to competitive pressures or
unanticipated requirements, which could have a material effect on our business,
financial condition and future operating results.

WE FACE INTENSE COMPETITION WHICH COULD CAUSE US TO LOSE MARKET SHARE.

In the advanced technology vehicle market in the United States, we compete with
large manufacturers, including Honda, Toyota, and Daimler-Chrysler, who have
more significant financial resources, established market positions,
long-standing relationships with customers and dealers, and who have more
significant name recognition, technical, marketing, sales, manufacturing,
distribution, financial and other resources than we do. Each of these companies
is currently working to develop, market, and sell advanced technology vehicles
in the United States market. The resources available to our competitors to
develop new products and introduce them into the marketplace exceed the
resources currently available to us. We also face competition from smaller
companies with respect to our consumer products, such as our electric bicycle
and scooter. We expect to face competition from the makers of consumer batteries
and small electronics with respect to the ZAP Portable Energy line. This intense
competitive environment may require us to make changes in our products, pricing,
licensing, services, distribution, or marketing to develop, maintain, and extend
our current technology and market position.

CHANGES IN THE MARKET FOR ELECTRIC VEHICLES COULD CAUSE OUR PRODUCTS TO BECOME
OBSOLETE OR LOSE POPULARITY.

The electric vehicle industry is in its infancy and has experienced substantial
change in the last few years. To-date, demand for and interest in electric
vehicles has been sporadic. As a result, growth in the electric vehicle industry
depends on many factors, including:

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          o  continued development of product technology;
          o  the environmental consciousness of customers;
          o  the ability of electric vehicles to successfully compete with
             vehicles powered by internal combustion engines;
          o  widespread electricity shortages and the resultant increase in
             electricity prices, especially in our primary market, California,
             which could derail our past and present efforts to promote electric
             vehicles as a practical solution to vehicles which require
             gasoline; and
          o  whether future regulation and legislation requiring increased use
             of nonpolluting vehicles is enacted.

We cannot assure you that growth in the electric vehicle industry will continue.
Our business may suffer if the electric vehicle industry does not grow or grows
more slowly than it has in recent years or if we are unable to maintain the pace
of industry demands.

WE MAY BE UNABLE TO KEEP UP WITH CHANGES IN ELECTRIC VEHICLE TECHNOLOGY AND, AS
A RESULT, MAY SUFFER A DECLINE IN OUR COMPETITIVE POSITION.

Our current products are designed for use with, and are dependent upon, existing
electric vehicle technology. As technologies change, we plan to upgrade or adapt
our products in order to continue to provide products with the latest
technology. However, our products may become obsolete or our research and
development efforts may not be sufficient to adapt to changes in or create
necessary technology. As a result, our potential inability to adapt and develop
the necessary technology may harm our competitive position.

THE FAILURE OF CERTAIN KEY SUPPLIERS TO PROVIDE US WITH COMPONENTS COULD HAVE A
SEVERE AND NEGATIVE IMPACT UPON OUR BUSINESS.

We rely on a small group of suppliers to provide us with components for our
products, some of whom are located outside of the United States. If these
suppliers become unwilling or unable to provide components, there are a limited
number of alternative suppliers who could provide them. Changes in business
conditions, wars, governmental changes, and other factors beyond our control or
which we do not presently anticipate could affect our ability to receive
components from our suppliers. Further, it could be difficult to find
replacement components if our current suppliers fail to provide the parts needed
for these products. A failure by our major suppliers to provide these components
could severely restrict our ability to manufacture our products and prevent us
from fulfilling customer orders in a timely fashion.

As described elsewhere, we have entered into a contract with a Brazilian
automobile manufacturer, OBVIO, for the delivery of 50,000 flex-fuel vehicles in
two different models. We may not be able to obtain the vehicles that we expect
to obtain from OBVIO because OBVIO is a new developer and manufacturer of
automobiles in Brazil and there are many risks associated with its design and
manufacturing of cars for us, including, but not limited to, risks associated
with the constructing its factory, hiring personnel, acquiring equipment,
assembling a network of suppliers and developing the vehicle assembly process.
If we cannot get the vehicles from OBVIO that we expect to, our business will be
adversely affected.

LITIGATION RISKS

ZAP v. Daimler Chrysler AG, et al., Superior Court of California, County of Los
Angeles, Case No. BC342211. On October 28, 2005, ZAP filed a complaint against
Daimler Chrysler Corporation and others in the Los Angeles Superior Court in
excess of $500 million. The complaint includes claims for intentional and
negligent interference with prospective economic relations, trade libel,
defamation, breach of contract - agreement to negotiate in good faith, breach of
implied covenant of good faith and fair dealing, and unfair competition. The
complaint alleges that Daimler Chrysler has engaged in a series of
anti-competitive tactics aimed at defaming ZAP and disrupting its third-party
business relationships. As a result of the allegations, the complaint requests
damages in excess of $500 million and such other relief as the court deems just
and proper. Daimler Chrysler has successfully filed a motion to quash that
complaint for lack of personal jurisdiction, and the court's ruling on that
matter is in the process of being appealed to the State of California Supreme
Court.

                                       10
<PAGE>

PRODUCT LIABILITY OR OTHER CLAIMS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS.

The risk of product liability claims, product recalls, and associated adverse
publicity is inherent in the manufacturing, marketing, and sale of electrical
vehicles. Although we have product liability insurance for our consumer products
for risks of up to an aggregate of $5,000,000, that insurance may be inadequate
to cover all potential product claims. We also carry liability insurance on our
automobile products. Any product recall or lawsuit seeking significant monetary
damages either in excess of our coverage, or outside of our coverage, may have a
material adverse effect on our business and financial condition. We may not be
able to secure additional product liability insurance coverage on acceptable
terms or at reasonable costs when needed. A successful product liability claim
against us could require us to pay a substantial monetary award. Moreover, a
product recall could generate substantial negative publicity about our products
and business and inhibit or prevent commercialization of other future product
candidates. We cannot assure you that such claims and/or recalls will not be
made in the future.

WE MUST DEVOTE SUBSTANTIAL RESOURCES TO IMPLEMENTING A PRODUCT DISTRIBUTION
NETWORK.

Our dealers are often hesitant to provide their own financing to contribute to
our product distribution network. As a result, we anticipate that we may have to
provide financing or other consignment sale arrangements for dealers who would
like to participate as our regional distribution centers.

The further expansion of our product distribution network will require a
significant capital investment and will require extensive amounts of time from
our management. A capital investment such as this presents many risks, foremost
among them being that we may not realize a significant return on our investment
if the network is not profitable. Our inability to collect receivables from our
dealers could cause us to suffer losses. Lastly, the amount of time that our
management will need to devote to this project may divert them from performing
other functions necessary to assure the success of our business.

FAILURE TO MANAGE OUR GROWTH EFFECTIVELY COULD ADVERSELY AFFECT OUR BUSINESS.

We plan to increase sales and expand our operations substantially during the
next several years through internally-generated growth and the acquisition of
businesses and products.

To manage our growth, we believe we must continue to implement and improve our
operational, manufacturing, and research and development departments. We may not
have adequately evaluated the costs and risks associated with this expansion,
and our systems, procedures, and controls may not be adequate to support our
operations. In addition, our management may not be able to achieve the rapid
execution necessary to successfully offer our products and services and
implement our business plan on a profitable basis. The success of our future
operating activities will also depend upon our ability to expand our support
system to meet the demands of our growing business. Any failure by our
management to effectively anticipate, implement, and manage changes required to
sustain our growth would have a material adverse effect on our business,
financial condition, and results of operations. We cannot assure you that we
will be able to successfully operate acquired businesses, become profitable in
the future, or effectively manage any other change. An inability to successfully
operate recently acquired businesses and manage existing business would harm our
operations.

THE LOSS OF CERTAIN KEY PERSONNEL COULD SIGNIFICANTLY HARM OUR BUSINESS.

The Company's performance is substantially dependent upon the services of its
executive officers and other key employees, as well as on its ability to
recruit, retain, and motivate other officers and key employees. Competition for
qualified personnel is intense and there are a limited number of people with
knowledge of and experience in the advanced technology vehicle industry. The
loss of services of any of our officers or key employees, or our inability to
hire and retain a sufficient number of qualified employees, will harm our
business. Specifically, the loss of Mr. Schneider, our Chief Executive Officer
or Mr. Starr, our Chairman of the Board, whose specialized knowledge of the
electric vehicle industry is essential to our business, would be detrimental. We

                                       11
<PAGE>
have employment agreements with Mr. Schneider and Mr. Starr that provide for
their continued service to the Company until October 1, 2013.

REGULATORY REQUIREMENTS MAY HAVE A NEGATIVE IMPACT UPON OUR BUSINESS.

While our products are subject to substantial regulation under federal, state,
and local laws, we believe that the products we have sold are materially in
compliance with all applicable laws. However, to the extent the laws change, or
if we introduce new products in the future, some or all of our products may not
comply with applicable federal, state, or local laws. Further, certain federal,
state, and local laws and industrial standards currently regulate electrical and
electronics equipment. Although standards for electric vehicles are not yet
generally available or accepted as industry standards, our products may become
subject to federal, state, and local regulation in the future. Compliance with
this regulation could be burdensome, time consuming, and expensive.

Our automobile products are subject to environmental and safety compliance with
various federal and state regulations, including regulations promulgated by the
EPA, NHTSA, and Air Resource Board of the State of California, and compliance
certification is required for each new model year. The cost of these compliance
activities and the delays and risks associated with obtaining approval can be
substantial. Although the Company had marketed its Smart Car product in the
United States, the car must be certified by the California Air Resources Board
before it can be sold in California, New York, and three other states. In
addition, the two models of our OBVIO products will need to satisfy all
regulatory requirements before they can be sold in the United States. The risks,
delays, and expenses incurred in connection with such compliance could be
substantial.

MANUFACTURING OVERSEAS MAY CAUSE PROBLEMS FOR US.

We have been shifting our manufacturing overseas, including Chinese companies
and a Brazilian company. There are many risks associated with international
business. These risks include, but are not limited to, language barriers,
fluctuations in currency exchange rates, political and economic instability,
regulatory compliance difficulties, problems enforcing agreements, and greater
exposure of our intellectual property to markets where a high probability of
unlawful appropriation may occur. A failure to successfully mitigate any of
these potential risks could damage our business.

WE MAY NOT BE ABLE TO PROTECT OUR INTERNET ADDRESS.

We currently hold the internet address, http://www.zapworld.com, a portal
through which we sell our products. We may not be able to prevent third parties
from acquiring internet addresses that are confusingly similar to our address,
which could adversely affect our business. Governmental agencies and their
designees generally regulate the acquisition and maintenance of internet
addresses. However, the regulation of internet addresses in the United States
and in foreign countries is subject to change. As a result, we may not be able
to acquire or maintain relevant internet addresses in all countries where we
conduct business.

OUR SUCCESS IS HEAVILY DEPENDENT ON PROTECTING OUR INTELLECTUAL PROPERTY RIGHTS.

We rely on a combination of patent, copyright, trademark, and trade secret
protections to protect our proprietary technology. Our success will, in part,
depend on our ability to obtain trademarks and patents. We hold several patents
registered with the United States Patent and Trademark Office. These
registrations include both design patents and utility patents. In addition, we
have recently submitted provisional patents which may or may not be afforded the
limited protection associated with provisional patents. We have also registered
numerous trademarks with the United States Patent and Trademark Office, and have
several pending at this time. We cannot assure you that the trademarks and
patents issued to us will not be challenged, invalidated, or circumvented, or
that the rights granted under those registrations will provide competitive
advantages to us.

We also rely on trade secrets and new technologies to maintain our competitive
position. Although we have entered into confidentiality agreements with our
employees and consultants, we cannot be certain that others will not gain access
to these trade secrets. Others may independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
our trade secrets.

                                       12
<PAGE>

WE MAY BE EXPOSED TO LIABILITY FOR INFRINGING INTELLECTUAL PROPERTY RIGHTS OF
OTHER COMPANIES.

Our success will, in part, depend on our ability to operate without infringing
on the proprietary rights of others. Although we have conducted searches and are
not aware of any patents and trademarks which our products or their use might
infringe, we cannot be certain that infringement has not or will not occur. We
could incur substantial costs, in addition to the great amount of time lost, in
defending any patent or trademark infringement suits or in asserting any patent
or trademark rights, in a suit with another party.

RISK OF UNREGISTERED SECURITIES OFFERING.

In the past, we have had numerous sales of our securities which were not
registered under federal or state securities laws. We have strived to comply
with all applicable Federal and state securities laws in connection with our
issuances of unregistered securities. However, to the extent we have not
complied, there may be liability for the purchase price of the securities sold
together with interest and the potential of regulatory sanctions.

OUR STOCK PRICE AND TRADING VOLUME MAY BE VOLATILE, WHICH COULD RESULT IN
SUBSTANTIAL LOSSES FOR OUR STOCKHOLDERS.

The equity trading markets may experience periods of volatility, which could
result in highly variable and unpredictable pricing of equity securities. The
market price of our common stock could change in ways that may or may not be
related to our business, our industry or our operating performance and financial
condition. In addition, the trading volume in our common stock may fluctuate and
cause significant price variations to occur. We have experienced significant
volatility in the price of our stock over the past few years. If the market
price of our common stock declines significantly, you may be unable to resell
your common stock at or about its purchase price. We cannot assure you that the
market price of our common stock will not fluctuate or decline significantly in
the future. In addition, the stock markets in general can experience
considerable price and volume fluctuations.

A substantial number of shares we have issued in exempt transactions are, or are
being made, available for sale on the open market, and the resale of these
securities might adversely affect our stock price.

We have on file with the SEC effective registration statements for a substantial
number of shares for resale. The selling stockholders under our effective
registration statements will be permitted to sell their registered shares in the
open market from time to time without advance notice to us or to the market and
without limitations on volume.

The sale of a substantial number of shares of our common stock under our
registration statements, or the anticipation of such sales, could make it more
difficult for us to sell equity or equity-related securities in the future at a
time and at a price that we might otherwise wish to effect sales.

We have not paid cash dividends on our common stock and do not anticipate paying
any cash dividends on our common stock in the foreseeable future.

We have not achieved profitable operations and if we do realize a profit in the
future, we anticipate that we will retain all future earnings and other cash
resources for the future operation and development of our business. Accordingly,
we do not intend to declare or pay any cash dividends on our common stock in the
foreseeable future. Payment of any future dividends will be at the direction of
our board of directors after taking into account many factors, including our
operating results, financial conditions, current and anticipated cash needs and
plans for expansion.

SOURCES AND AVAILABILITY OF PARTS AND SUPPLIES

Materials, parts, supplies and services used in our business are generally
available from a variety of sources. However, interruptions in production or
delivery of these goods could have an adverse impact on our general operations,
or our manufacturer's operations and production of ZAP products. We strive to
have dual sources.

                                       13
<PAGE>

LICENSES, PATENTS AND TRADEMARKS

We have the following patents covering our electric vehicles:

------------------------- -------------- ---------------------------------------
United States Patent      Date           Subject
------------------------- -------------- ---------------------------------------
Patent No. 5,491,390      2/13/1996      Electric motor power system for
                                         bicycles, tricycles, and scooters
------------------------- -------------- ---------------------------------------
Patent No. 5,671,821      9/30/1997      Electric motor system
------------------------- -------------- ---------------------------------------
Patent No. 5,848,660      12/15/1998     Portable Collapsible Scooter (ZAPPY)
------------------------- -------------- ---------------------------------------
Patent No. 5,634,423      6/3/1997       Personal Submersible Marine Vehicle
------------------------- -------------- ---------------------------------------
Patent No. 5,423,278      6/13/1995      Submersible Marine Vessel
------------------------- -------------- ---------------------------------------
Patent No. 5,303,666      4/19/1994      Submersible Marine Vessel
------------------------- -------------- ---------------------------------------
Patent No. 6,748,894      6/15/2004      Submersible Marine Vessel (sea scooter)
------------------------- -------------- ---------------------------------------
Patent No. 6,588,528      7/8/2003       Electric Vehicle Drive System
------------------------- -------------- ---------------------------------------
Patent No. 5,842,535      12/1/1998      Electric Drive Assembly for Bicycles
------------------------- -------------- ---------------------------------------
Patent No. 6,050,357      4/18/2000      Powered Skateboard
------------------------- -------------- ---------------------------------------
Patent No. 6,059,062      5/9/2000       Powered Roller Skates
------------------------- -------------- ---------------------------------------
Patent No. 5,735,361      4/7/1998       Dual-Pole Personal Towing Vehicle
------------------------- -------------- ---------------------------------------
Patent No. 5,913,373      6/22/1999      Dual-Pole Dual-Wheel Personal Towing
                                         Vehicle
------------------------- -------------- ---------------------------------------
Patent No. DS40400        4/10/2007      Three-Wheeled Vehicle (ZAPPY 3 Scooter)
------------------------- -------------- ---------------------------------------
Patent No. D433,718       11/14/2000     Portable Collapsible Scooter (ZAPPY)
------------------------- -------------- ---------------------------------------
Patent No. D347,418       5/31/1994      Scuba Scooter
------------------------- -------------- ---------------------------------------
Patent No. D359,022       6/6/1995       Scuba Scooter
Patent No  D555,043       11/13/2007     Xebra
------------------------- -------------- ---------------------------------------




                                       14
<PAGE>

We have the following trademarks covering our electric vehicles:

---------------------------------------------- ---------------------------------
United States Trademark                        Subject
---------------------------------------------- ---------------------------------
Trademark No. 2759913                          Cap'n Billy's Wiz-Bang and design
---------------------------------------------- ---------------------------------
Trademark No. 2240270                          Electricruizer
---------------------------------------------- ---------------------------------
Trademark No. 2534197                          ETC Express
---------------------------------------------- ---------------------------------
Trademark No. 2878219                          ETC Traveler
---------------------------------------------- ---------------------------------
Trademark No. 2248753                          Powerbike
---------------------------------------------- ---------------------------------
Trademark No. 2224640                          Powerski
---------------------------------------------- ---------------------------------
Trademark No. 2329466                          The Future is Electric
---------------------------------------------- ---------------------------------
Trademark No. 1794866                          ZAP
---------------------------------------------- ---------------------------------
Trademark No. 2912329                          ZAP Car
---------------------------------------------- ---------------------------------
Trademark No. 2335090                          ZAP Electric Vehicle Outlet
---------------------------------------------- ---------------------------------
Trademark No. 2885816                          ZAP Seascooter
---------------------------------------------- ---------------------------------
Trademark No. 2330894                          ZAPPY
---------------------------------------------- ---------------------------------
Trademark No. 2371240                          Zapworld.com
---------------------------------------------- ---------------------------------
Trademark No. 2320346                          Zero Air Pollution
---------------------------------------------- ---------------------------------
Trademark No. 2689203                          Swimmy
Trademark No. 3376385                          Recharge-IT-All
Trademark No. 3254373                          ZAP Battery
Trademark No. 3297900                          Xebra
Trademark No. 3318875                          Zapino
Trademark No. 3318875                          Empower
---------------------------------------------- ---------------------------------

BACKLOG

As of April 8, 2008, the Company has $6.8 million in backlog orders from
auto-dealer purchase contracts for Xebra(R)Electric vehicles. We anticipate
shipping these units from on hand inventory and future shipments. ZAP has a
ready supply of Xebras from our China manufacturer who has excess production
capacity available. The backlog for our consumer products on the same date was
$712,000. We anticipate shipping the consumer products throughout the year of
2008.

COMPETITIVE CONDITIONS

The competition to develop and market advanced technology vehicles has been
intense and is expected to continue to increase. Our principal competitive
advantages over our competitors are our ownership of fundamental technology, our
trade name and brand recognition, our ability to be a low cost manufacturer
through domestic and international contract manufacturing arrangements and our
growing distribution network. We benefit from our high name recognition in the
advanced transportation vehicle industry coupled with a rapidly developing
consumer sales business on our website. In order to reduce costs, our production
activities have been transferred to lower cost contract manufacturers outside
the United States, which enables us to offer our products at competitive prices.
This also enables us to concentrate on our marketing and sales efforts and the
growth of our distribution network. We offer one of the broadest lines of
personal electric vehicles currently available, which we believe reinforces our
name recognition in the market place.

In the advanced technology vehicle market in the United States, we compete with
large manufacturers, including Honda, Toyota, and Daimler-Chrysler, who have
more significant financial resources, established market positions, longstanding
relationships with customers and dealers, and who have more significant name
recognition, technical, marketing, sales, manufacturing, distribution and other
resources than we do. Each of these companies is currently working to develop,
market and sell advanced technology vehicles in the United States market. The

                                       15
<PAGE>

resources available to our competitors to develop new products and introduce
them into the market place exceed the resources currently available to our
Company. We also face competition from smaller companies with respect to our
consumer products, such as our electric bicycle and scooter. We expect to face
competition from the makers of consumer batteries and small electronics with
respect to the ZAP portable energy line. This intense competitive environment
may require us to make changes in our products, pricing, licensing, services,
distribution or marketing to develop, maintain and extend our current technology
and market position.

EMPLOYEES

As of April 8, 2008, the Company had a total of 53 employees. We have employment
agreements with the following: Mr. Schneider (Chief Executive Officer and
Director), Mr. Starr (Chairman of the Board ), and Ms. Cude (Corporate Secretary
and Director) until 2013, Mr. Hartman until August 2008 with annual extensions
and Mr. Kazzaz until 2010. We believe our employee relations are generally good.
Our employees are not represented by a collective bargaining unit.

ITEM 2.   DESCRIPTION OF PROPERTY.

The chart below contains a summary of our principal facilities

Location                      Use                      Square Feet     Rent
---------------------------   -------------------      -----------   --------
501 Fourth Street, SR         Corporate Headquarters      20,000     $   --  (1)
44720 Main Street,Mendocino   Retail Outlet                5,507     $   --
2 West Third Street           Main Warehouse              22,000     $  9,000
806 Donahue Street            Vehicle Storage             21,954     $  8,800
3362 & 3405 Fulton Road, SR   Office, Automobile Lot      21,780     $  7,000

   (1)  Under the terms of the Mortgage, dated March 7, 2003, between the
        Company and Atocha Land LLC concerning the Fourth Street location,
        monthly payments of principal and interest amortizing the underlying $2
        million debt have commenced on April 7, 2005, with the interest at 7.5%.
        The underlying debt may be converted to ZAP's common shares at Atocha's
        option. See also below.

The Company purchased the Fourth Street building in March 2003 to use as our
principal executive offices. The building was built originally in 1906 and is in
downtown Santa Rosa. Over the years it was updated and remodeled by previous
owners and the Company. The Company has renovated the building during its
ownership with new carpets, paint and remodeled to include a new showroom and
conference room. The building and contents are adequately insured in the opinion
of management. The Company occupies more than 90 percent of the building. The
property tax rate is set at 1 percent per year of the assessed value (currently
set at the 2004 appraised value of $2.9 million). The building is being
depreciated over a 30 year useful life. The Company has a $2 million convertible
note due in March 2025, with annual interest at 7.5%. The Company began making
payments in April 2005 of $15,166 per month. The note is payable with equal
principal and interest payments over the next 240 months. The note-holder has
the option to convert some or all of the unpaid principal and accrued interest
to shares of ZAP's common stock at $2.15 per share or an agreed upon conversion
price (as defined). The seller also received common stock and warrants in
connection with the transaction. The Company purchased the Mendocino California
property in May 2005 which is currently being used as a retail outlet. The net
book value of our real estate holdings at December 31, 2007 was approximately
$3.8 million.

The rest of our facilities are rented or leased. The properties located at 3362
and 3405 Fulton Road are rented on a month-by-month basis from ZAP's Chief
Executive Officer. The Company plans to continue to rent properties based on the
Company's needs. The Company believes these properties are adequate for the
Company's foreseeable needs.

It is management's opinion that our insurance policies cover all insurance
requirements of the landlords. We own the basic tools, machinery and equipment
necessary for the conduct of our repairs, our minimal research and development,
and vehicle prototyping activities. We believe that the above facilities are
generally adequate for present operations. At present, the manufacturing for the
Company is being contracted out as well as certain research and developments
projects such as the Lotus Arrangement mentioned earlier.

                                       16
<PAGE>

ITEM 3. LEGAL PROCEEDINGS.

In the normal course of business, we may become involved in various legal
proceedings. Except as stated below, we know of no pending or threatened legal
proceeding to which we are or will be a party which, if successful, might result
in a material adverse change in our business, properties or financial condition.
However, as with most businesses, we are occasionally parties to lawsuits
incidental to our business, none of which are anticipated to have a material
adverse impact on our financial position, results of operations, liquidity or
cash flows. The Company estimates the amount of potential exposure it may have
with respect to litigation claims and assessments.

ZAP v. Daimler Chrysler AG, et al., Superior Court of California, County of Los
Angeles, Case No. BC342211. On October 28, 2005, ZAP filed a complaint against
Daimler Chrysler Corporation and others in the Los Angeles Superior Court in
excess of $500 million.. The complaint includes claims for intentional and
negligent interference with prospective economic relations, trade libel,
defamation, breach of contract - agreement to negotiate in good faith, breach of
implied covenant of good faith and fair dealing, and unfair competition. The
complaint alleges that Daimler Chrysler has engaged in a series of
anti-competitive tactics aimed at defaming ZAP and disrupting its third-party
business relationships. As a result of the allegations, the complaint requests
damages in excess of $500 million and such other relief as the court deems just
and proper. Daimler Chrysler has successfully filed a motion to quash that
complaint for lack of personal jurisdiction, and the court's ruling on that
matter is in the process of being appealed to the State of California Supreme
Court.

ZAP v. Norm Alvis, et al., Superior Court of California, County of Sonoma, Case
No. SCV-238419, complaint filed March 27, 2006. Mr. Alvis was engaged by the
Company and Rotoblock Corporation ("Rotoblock") as a consultant to perform
public relations work on behalf of the Company and Rotoblock. As consideration
for Mr. Alvis' consent to the contract with the Company, the Company provided
Mr. Alvis with use of a motor home worth approximately $306,000. The Company
then sued Mr. Alvis, claiming he failed to perform his obligations under the
contract and refused to return the consideration he received therefore (i.e. the
motor home). The Company is seeking either the return of the motor home or
$500,000 in damages. Mr. Alvis initially did not respond to the complaint, which
prompted the Company to take his default on May 9, 2006. The court then entered
a default judgment on May 16, 2006, on which date the Company obtained a writ of
possession allowing it to reclaim possession of the disputed motor home. On June
18, 2006, Mr. Alvis moved the court to set aside the default and default
judgment and to vacate its order authorizing issuance of the writ of possession.
The court agreed to set aside the default judgments, but it left intact the writ
of possession. The court also required Mr. Alvis to pay the Company $1,000 as
compensation for forcing the Company to initially take his default. Mr. Alvis
has paid the Company the required $1,000. Mr. Alvis then filed (1) an answer
denying the Company's allegations, and (2) a cross-claim against the Company,
Steve Schneider in his individual capacity, and Rotoblock, alleging two counts
of breach of contract, one common count of work, labor, and services received,
and one count of fraud. All of Mr. Alvis' claims relate to the two contracts he
executed with the Company and Rotoblock. Mr. Alvis claims he provided services
to the Company and Rotoblock pursuant to these contracts but received no
consideration in exchange therefore. For the fraud claim, the defendant claims
the Company and Schneider executed the contracts with no intent to perform. Mr.
Alvis has prayed for damages of $2,000,000, interest according to proof,
punitive damages, and an order directing the Company to perfect title to the
motor home. Mr. Alvis then moved the court to quash the writ of possession. The
parties attended mediation on March 4, 2008 and reached a tentative settlement
by which the matter would be resolved according to the following terms: (1) a
mutual release of all claims; (2) ZAP would pay $25,000 to Mr. Alvis;. (3) ZAP
would issue to Alvis $25,000 worth of shares of restricted ZAP common stock; (4)
ZAP would issue Alvis warrants for 100,000 shares of restricted ZAP common
stock, at a strike price of $.70 per share; and (5) ZAP would transfer title of
disputed motor home to Alvis. While ZAP has signed the mediation agreement with
these terms, Alvis has not yet done so. No definitive agreement has been
executed, therefore, pending execution of the mediation agreement by Alvis, then
approval of the settlement terms by the Company's Board of Directors, and
preparation of a definitive settlement agreement. The next case management
conference was scheduled for March 20, 2008, but the court continued same until
July 3, 2008 to allow the parties time to negotiate a settlement.

Robert Chauvin; Mary Chauvin; Rajun Cajun, Inc. dba ZAP of Carson City, dba ZAP
of Reno, dba ZAP of Sparks ("Robert Chauvin, et al.") v. Voltage Vehicles; ZAP;

                                       17
<PAGE>

ZAP Power Systems Inc.; ZAPWORLDCOM; Elliot Winfield; Steven Schneider; Phillip
Terrazzi; Max Scheder-Breschin; Renay Cude; [sic] and Does I-XX, Second Judicial
District Court State of Nevada, County of Washoe, Case No. CV06 02767. On
November 17, 2006, Robert Chauvin, et al. filed a complaint alleging breach of
contract, breach of the covenant of good faith and fair dealing, breach of
warranties, fraud/misrepresentation, negligent misrepresentation, quantum merit
or unjust enrichment, civil conspiracy, violation of Security [sic] and Exchange
Act/federal securities law, and deceptive trade practices, pursuant to a License
Agreement (for a distribution license) entered into between Rajun Cajun, Inc.
dba ZAP of Carson City, dba ZAP of Reno, dba ZAP of Sparks ("Rajun Cajun") and
Voltage Vehicles. The complaint seeks general damages in an amount in excess of
$10,000, special damages in an amount in excess of $10,000, punitive damages in
an amount in excess of $10,000, attorneys' fees and cost of suit, for judgment
in an amount equal to treble actual damages, and recession in the amounts of
$397,900 and $120,000. On January 19, 2007, defendants Voltage Vehicles and ZAP
filed a Motion to Dismiss on the grounds that the License Agreement entered into
between Rajun Cajun and Voltage contains a forum selection clause designating
Sonoma County, State of California as the only appropriate forum. The court
granted that Motion on April 13, 2007. In its order on that motion, the court
also found that all other motions pending in the Nevada court in this matter are
now moot. (As of that time, the following motions were still pending: (1)
Chauvin, et al.'s Notices of Intent to Take Default against two of the named
corporate defendants and against the individual defendants, except Renay Cude;
(2) a Motion to Quash Service of Process or Alternatively for Dismissal by each
of the individual defendants and both of the defunct corporate defendants; and
(3) Chauvin, et al.'s Motion for Publication of Summons against the named
individual defendants.)

Voltage Vehicles v. Rajun Cajun, et al., Superior Court of California, County of
Sonoma, Case No. SCV 240179, filed February 9, 2007. (This suit is related to
the Nevada case of Robert Chauvin, et al. v. Voltage Vehicles, et al. discussed
immediately above.) In its complaint, Voltage Vehicles requests Declaratory
Relief against Rajun Cajun, asking the Court to declare that the License
Agreement between those two parties does not grant Rajun Cajun an exclusive
dealership in northern Nevada to distribute Voltage Vehicle products and that
Voltage Vehicles has performed its obligations under the License Agreement. On
May 24, 2007, Rajun Cajun filed a Cross-Complaint in substantially the same form
as the Complaint filed in Nevada, alleging breach of contract, breach of the
covenant of the good faith, etc. The Cross-Complaint seeks general damages in an
amount in excess of $25,000, special damages in an amount in excess of $25,000,
punitive damages in an amount in excess of $25,000, attorneys' fees and cost of
suit, for judgment in the amount equal to treble actual damages, and rescission
in the amounts of $397,900 and $120,000, plus interest. Cross-Defendants intend
to vigorously defend against the claims set forth in the Cross-Complaint and so,
on August 22, 2007, Cross-Defendants filed both a special demurrer for abatement
to prohibit Cross-Complainants from maintaining a cross-complaint and a demurrer
to the Cross-Complaint itself. On February 11, 2008 ZAP and Voltage Vehicles
filed a demurrer to Cross-complainants' third through fifteenth causes of
action. A hearing on that demurer is currently set for June 11, 2008. The next
case management conference is scheduled for April 2, 2008.

ZAP v. International Monetary Group,(Patrick J Harrington President and CEO)
Inc., a Delaware corporation; Michael C. Sher dba the Law Offices of Michael C.
Sher, Case No. SCV 240277, complaint filed March 1, 2007 in Sonoma County
Superior Court. ZAP sued International Monetary Group ("IMG") whose President
and CEO is Patrick D. Harrington and Michael Sher for declaratory relief,
rescission, and breach of contract. ZAP had entered into an agreement with IMG,
a merchant banking company, to procure financing, and ZAP alleges that IMG,
contrary to the parties' agreement, is seeking to enforce a $500,000 promissory
note. The parties settled the litigation in December, 2007, providing each other
with general releases of all claims. In connection with the settlement of this
matter and the matter International Monetary Group, Inc., a Delaware
corporation; and Michael C. Scher dba the Law Offices of Michael C. Scher v. ZAP
Corporation, a California corporation; and Steven Schneider, an individual,
Scher returned stock certificates representing 1,431,294 shares of ZAP's common
stock to Company for cancellation and ZAP issued 387,500 shares of ZAP common
stock to IMG. .

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None during the fourth quarter of 2007.


                                       18
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                                     PART II

ITEM 5.   MARKET FOR COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND SMALL
BUSINESS PURCHASES OF EQUITY SECURITIES.

MARKET INFORMATION
On July 1, 2002, ZAP's stock began trading on the National Association of
Securities Dealers, Inc. Electronic Bulletin Board (the "OTC Bulletin Board")
under the stock symbol of "ZAPZ." In 2006, the Company briefly traded on the
ACRAEX under the symbol "ZP". In November, 2006, since the Company could not
meet the listing requirements of the ARCEX, ZAP's common stock was approved for
quotation on the OTC Bulletin Board under the symbol "ZAAP."

                                               BID PRICE
                                      ---------------------------
      PERIOD                           HIGH                 LOW
--------------------------            ------               ------
FISCAL YEAR 2007:
       DECEMBER 31, 2007              $ 0.81               $ 0.74
       SEPTEMBER 30, 2007               1.04                 1.02
       JUNE 30, 2007                    0.96                 0.93
       MARCH 31, 2007                   1.15                 1.05

FISCAL YEAR 2006:
       DECEMBER 31, 2006              $ 1.18               $ 0.79
       SEPTEMBER 30, 2006               1.74                 0.69
       JUNE 30, 2006                    2.59                 1.12
       MARCH 31, 2006                   1.81                 0.28

HOLDERS

We have approximately 3,590 record holders of our common stock as of April 8,
2008, according to a shareholders' list provided by our transfer agent as of
that date. The number of registered shareholders does not include any estimate
by us of the number of beneficial owners of common shares held in street name.
The transfer agent and registrar for our common stock is Continental Trust &
Transfer Company.

DIVIDENDS

We have never declared nor paid any cash dividends on our common stock, and we
do not anticipate that we will pay any cash dividends on our common stock in the
foreseeable future. Any future determination to declaration and payment of cash
dividends will be at the discretion of our board of directors, and will be
dependent upon our financial condition, results of operations, capital
requirements and other factors as our board of directors may deem relevant at
that time. On November 9, 2006, ZAP's Board of Directors approved a 10% stock
dividend to be issued, effective February 28, 2007, to all shareholders of
record as of February 15, 2007.

RECENT SALES OF UNREGISTERED SECURITIES

The following lists sales of unregistered securities during the last fiscal year
that were not previously included in a Quarterly Report on Form 10-QSB or a
Current Report on Form 8-K. We relied on the exemption from registration
afforded by Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act") for the issuance of these securities. Except as stated below,
no underwriting discounts or commissions were payable with respect to any of the
following transactions. The offer and sale of the following securities was
exempt from the registration requirements of the Securities Act under Rule 506
insofar as (1) except as stated below, each of the investors was accredited
within the meaning of Rule 501(a); (2) the transfer of the securities were
restricted by the company in accordance with Rule 502(d); (3) there were no more
than 35 non-accredited investors in any transaction within the meaning of Rule
506(b), after taking into consideration all prior investors under Section 4(2)
of the Securities Act within the twelve months preceding the transaction; and
(4) none of the offers and sales were effected through any general solicitation
or general advertising within the meaning of Rule 502(c).

On October 3, 2007 the Company also issued 90,000 shares for an asset purchase
valued at $90,000. On this same date the Company also issued 15,000 shares for
charitable contributions valued at $15,000.

                                       19
<PAGE>

On November 9, 2007 the Company issued 3,723 shares were issued for professional
services valued at $3,500.

On December 18, 2007, the Company issued 72,289 shares of common stock for
professional services valued at $60,000. On this same date the Company also
issued 50,000 shares for an asset purchase valued at $41,500.

ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

THIS ANNUAL REPORT, INCLUDING THE FOLLOWING MANAGEMENT'S DISCUSSION AND
ANALYSIS, AND OTHER REPORTS FILED BY THE REGISTRANT FROM TIME TO TIME WITH THE
SECURITIES AND EXCHANGE COMMISSION (COLLECTIVELY THE "FILINGS") CONTAIN
FORWARD-LOOKING STATEMENTS WHICH ARE INTENDED TO CONVEY OUR EXPECTATIONS OR
PREDICTIONS REGARDING THE OCCURRENCE OF POSSIBLE FUTURE EVENTS OR THE EXISTENCE
OF TRENDS AND FACTORS THAT MAY IMPACT OUR FUTURE PLANS AND OPERATING RESULTS.

Please read the "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS" at the
beginning of this Annual Report for important information about our
forward-looking statements.

SUMMARY OF KEY ACCOMPLISHMENTS DURING 2007
Recent Developments

Some of the significant events for the Company that occurred during the year of
2007 and through the date of this report are as follows:

   1.   In November we received $5 million from the issuance of common stock in
        a private placement to a qualified investor.

   2.   We signed a joint venture agreement with Youngman Automotive Group,
        China's number one luxury motor coach and high-quality commercial truck
        manufacturer, to manufacture, market and distribute electric and hybrid
        vehicles for the passenger car, truck and bus markets. This new venture
        is called Detroit Electric. We have invested a total of approximately
        $700,000 to date.

   3.   During the third quarter we received orders for over 50,000 units of our
        Recharge-It-All line of rechargeable lithium battery storage devices.
        ZAP's Recharge-It-All line is a unique rechargeable battery system that
        can provide a portable power source for almost any kind of mobile
        electronic device, from cell phones, to digital cameras, to laptops.
        More than just a battery, Recharge-It-All can automatically sense and
        deliver the appropriate voltage for a range of power settings.

   4.   We signed an agreement with Coca-Cola's Latin America subsidiary,
        Montevideo Refrescos Sociedad SA (Monresa). The contract is a purchase
        and service agreement for ZAP XEBRA(R) trucks. The first shipment of ZAP
        trucks is in transit from China and more details are expected to be
        announced with the rollout of the business model between ZAP and
        Coca-Cola.

   5.   We are now developing a new highway capable electric vehicle that is
        affordable for consumers. With a targeted price of $32,000, the
        technology for the new vehicle is similar to that of an electric SUV
        concept announced earlier this year called ZAP-Alias, with a target
        release date in 2009.

   6.   We have been allowed a patent and trademark for the ZAP XEBRA(R)
        city-speed electric car and truck from the United States Patent and
        Trademark Office. Over 600 Xebra trucks and sedans have been delivered
        through December 31, 2007.

   7.   To help mitigate pollution and traffic congestion, Chile's largest power
        company, CHILECTRA, will allow its customers to use their monthly
        utility bill to finance the purchase of electric bicycles, scooters,
        mopeds and other vehicles from us. As part of the program, CHILECTRA has
        signed an exclusive agreement with ZAP to distribute its full-line of
        electric transportation in Chile.

                                       20
<PAGE>

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2007 COMPARED TO YEAR ENDED DECEMBER 31, 2006

NET SALES for the year ended December 31, 2007, were $5.7 million compared to
$10.8 million for the year ended December 31, 2006. The decrease was due to less
sales of Smart Cars Americanized by ZAP. During the year ended December 31,
2007, the Company had approximately $2.1 million in Xebra sales, as compared to
$737,000 for the year of 2006. Sales of the new product line of portable energy
accounted for approximately $875,000 of the net sales for year ended December
31, 2007.

GROSS PROFIT increased by $250,000 from $525,000 in 2006 to $775,000 for the
year ended December 31, 2007.
The major reason for the increase was due to more vehicle unit sales of Xebras,
with higher sales margins in 2007, and sales of the new portable energy product
line, which also has greater profit margins.

SALES AND MARKETING EXPENSES for the year ended December 31, 2007 increased by
approximately $200,000 from $1.3 million in 2006 to $1.5 million in 2007. The
increase was primarily due to greater marketing and promotion expenses for the
Xebras and portable energy product lines during the year.

GENERAL AND ADMINISTRATIVE EXPENSES increased by $9.8 million from $15.4 million
in 2006 to $25.2 million in 2007. The primary increase was due to non-cash
expenses of $11.7 million to account for the modification and extension of
certain expiring warrants that were issued to shareholders pursuant to the plan
of reorganization in June of 2002 and also to current ZAP employees for
compensation purposes. The warrants were extended by five years until July 2012
with the exercise prices also adjusted. The aforementioned increase also
included expensing of stock options in accordance with SFAS123R, which was
offset by lower expenses in 2007 as compared to 2006 related to professional
fees and amortization for previously terminated licenses agreements.

RESEARCH AND DEVELOPMENT EXPENSES of $616,000 in 2007 were primarily for the
Company's investment in a project with Lotus Engineering to develop a new
electric car based on the APX (Aluminum Performance Crossover) concept, which
showcases Lotus Engineering's Versatile Vehicle Architecture technology. The
vehicle, the ZAPX, will be a production-ready electric all-wheel drive crossover
high performance vehicle for ZAP in the USA market. Additionally, we purchased
various scooter prototypes in 2007 for evaluation of future model introductions.
This compares to research and development expenses of $715,000 in 2006.

IMPAIRMENT LOSS ON THE SMART AUTOMOBILE LICENSE resulted from the cancellation
of the Smart Auto License and distribution agreement during the third quarter of
2006. The expense of $2.2 million represents the write-off of the net book value
of the Smart Automobile license, advances for inventory and related equipment.

                                       21
<PAGE>

GAIN ON SETTLEMENT OF SMART AUTO LIABILITY the Company realized a gain of $7.1
milllion resulting from the discharge of the liability from Smart Auto during
the third quarter of 2006. The agreement with Smart Auto was previously
cancelled in the second quarter of 2006 with a residual liability of $7.1
million at June 30, 2006. The discharge of the liability was largely due to
Smart Auto's inability to supply smart Cars for ZAP to convert to Smart Cars
Americanized by ZAP.

INTEREST EXPENSE, NET increased by $1.2 million from an interest expense of
$241,000 for the year ended 2006 to interest expense of $1.4 million for the
year ended December 31, 2007. The increase was due to interest and the
amortization of the discounts in connection with the senior convertible debt
that was issued in late 2006 and early 2007.

NET LOSS was $28.0 million for the year ended December 31, 2007 as compared to a
net loss of $11.9 million for year ended December 31, 2006. The additional
losses in 2007 were primarily due to the modification and extension of certain
expiring warrants that were issued by the Company to selected shareholders and
current ZAP employees.

LIQUIDITY AND CAPITAL RESOURCES

The Company used cash in operations of $5.3 million and $4.9 million during the
years ended December 31, 2007 and 2006, respectively. Cash used in operations in
2007 was the result of the net loss incurred for the year of $28 million, offset
by non-cash expenses of $23 million. In 2007, non-cash expenses included $4.4
million for stock -based compensation for consulting and other services, $17.3
million for stock-based compensation to employees. Cash used in operations in
2006 was the result of the net loss incurred for the year of $11.9 million,
offset by non-cash expenses of $5.1 million. In 2006, non-cash expenses included
$4.7 million related to stock-based compensation for consulting and other
services, $4.1 million for stock-based compensation to employees, $2.4 million
related to the Smart Auto license and equipment impairment offset by a $7.1
million gain resulting from the settlement of the Smart Auto liability .

In 2007, the net change in operating assets and liabilities resulted in a cash
decrease of $834,000. The change was primarily due to increases for inventory.

In 2006, the net change in operating assets and liabilities resulted in a cash
increase of $2 million. The change was primarily due to decreases in inventory.

Investing activities used cash of $189,000 and $42,000 during the year ended
December 31, 2007 and 2006, respectively.

Financing activities provided cash of $7.7 million and $5.5 million during the
year ended December 31, 2007 and 2006, respectively.

The Company had cash and cash equivalents of $4.3 million at December 31, 2007
as compared to $2.2 million at December 31, 2006. The Company had a working
capital of $3.4 million at December 31, 2007 as compared to working capital
deficit of $71,000 at December 31, 2006.

During the second half of 2007, the Senior Convertible note holders have
converted approximately $2.1 million of the notes into ZAP common stock leaving
an outstanding balance of $681,000 at December 31, 2007.

In November 2007, we received $5 million from the issuance of common stock in a
private placement to a qualified investor.

We do not have a bank operating line of credit, and there can be no assurance
that any required or desired financing will be available through bank
borrowings, debt or equity offerings, or otherwise, on acceptable terms. If
future financing requirements are satisfied through the issuance of equity
securities, investors may experience significant dilution in the net book value
per share of common stock, and there is no guarantee that a market will exist
for the sale of the Company's shares.

At present, the Company needs additional capital to continue expanding its
current operations. The Company's primary capital needs are: (i) to purchase
Xebra(TM) vehicles, both sedan and utility trucks from ZAP's Chinese partner to
fulfill the increasing demand for 100% electric vehicles in the United States,
and (ii) to continue building our dealer network and expanding ZAP's market
initiatives. ZAP also requires financing to purchase consumer product inventory

                                       22
<PAGE>

for the continued roll-out of new products, to add qualified sales and
professional staff to execute on ZAP's business plan, and to expand ZAP's
efforts in the research and development of advanced technology vehicles, such as
the ethanol-driven OBVIO! Automobiles, the new ZAP Alias, and ZAP-X program and
other fuel efficient vehicles.

STOCK ISSUED AS COLLATERAL - In December 2004, the Company issued 2.9 million
common shares as collateral for a $1 million loan. The $3.529 million market
value of these shares at the date of issuance was recorded in common stock with
an offsetting contra equity account. These shares were previously issued to
Mercatus Partners LLP in January 2003 as collateral for a loan that never
funded. The shares were reported as lost to the Company in December 2003. In
December 2004, the shares were reissued to Mercatus Partners who then assigned
the shares and their interests to Phi-Nest Fund, L.P. as collateral for the $1
million loan commitment. The Company amended the Loan Agreement allowing them to
purchase 500,000 shares for $1.16 per share. On March 30, 2006, the Company
received $500,000 in net proceeds from the sale of 500,000 of the shares, and
the collaterized shares were reduced to 2,441,176 shares. In September of 2006,
the Company signed a Settlement Agreement with Phi-Nest Fund,L.P.requiring that
the common stock being held as collateral be transferred to an independent third
party (Michael C. Sher dba the Law Offices of Michael C. Sher), to hold the
securities in a depository account pending the possible funding of a loan by
January of 2007. In return, Phi-Nest Fund, L.P., received for consulting
services 150,000 shares of the collateral stock and forgiveness of a note
receivable for $56,000 owed by a cousin of Steven Schneider, ZAP CEO. As a
result, the Company recognized $236,000 in non cash charges in the accompanying
2006 consolidated statement of operations. Later in September, the Board of
Directors approved the sale of 500,000 of the collateral stock to a qualified
investor with proceeds of $487,500 received by the Company in October of 2006.
Also in October 2006, the Company authorized the issuance of 250,000 shares of
the collateral stock to International Monetary Group, a merchant banking company
that was to procure financing for the Company, and 250,000 of the collateral
stock to Michael C. Sher for consulting services and recognized $600,000 in
non-cash consulting expense.

In 2007, Michael C. Sher dba the Law Offices of Michael C. Sher who is holding
the restricted common stock of 1,291,176 shares, has refused to release the
stock to the Company due to a dispute over an alleged debt obligation which
Michael C. Sher dba the Law Offices of Michael C. Sher believes the Company owes
to his investment firm. The parties settled the litigation in December, 2007,
providing each other with general releases of all claims. In connection with the
settlement of this matter and the matter International Monetary Group, Inc., a
Delaware corporation; and Michael C. Sher dba the Law Offices of Michael C. Sher
v. ZAP Corporation, a California corporation; and Steven Schneider, an
individual, Sher returned stock certificates representing 1,431,294 shares of
ZAP's common stock to Company for cancellation and ZAP issued 387,500 shares of
ZAP common stock to IMG. Although the parties agreed to the settlement, the
stock was not transferred until January 2008, thus completing the transaction.

In January 2005, the Company paid $1,000,000 to Smart Automobile LLC and Thomas
Heidemann (President of Smart Auto LLC) in exchange for a note receivable. The
note bears interest at 5% per annum, payable in 24 equal monthly installments
beginning January 7, 2006. The loan was secured by an interest in certain Smart
Cars owned by Smart Auto LLC. The note was in default as of January 7, 2006
since the Company has not received the required payments and is uncertain if any
payments will be received in the future and has therefore established a reserve
a $1 million in the event efforts to collect the note are unsuccessful.

In September 2005, the Company signed a $425 million revolving financing
facility with Surge Capital II, LLC that, subject to certain conditions, can be
used by ZAP to import Smart Cars Americanized by ZAP and other advanced
transportation vehicles for ZAP dealers. The financing agreement had a term of
one year, but may be extended upon agreement by both parties. The financing is
based on orders ZAP receives from dealers who must be approved in advance by
Surge Capital II, LLC and is secured by a first lien on substantially all of
ZAP's assets. In September of 2006, the financing facility expired with neither
party wishing to continue the agreement. No amounts were outstanding and due
under the agreement and all liens placed on behalf of Surge Capital II, LLC have
been cancelled.

8% Senior Convertible Notes

On December 5, 2006, when the market price of the Company's common stock was
$0.89 per share, the Company entered into a Securities Purchase Agreement with

                                       23
<PAGE>

three institutional and accredited investors or purchasers pursuant to which the
Company sold to the purchasers $1.5 million aggregate principal amount of 8%
senior convertible notes due December 5, 2008 (the "Notes due 2008") and
warrants to purchase 450,000 shares of common stock of the Company (the "Initial
Warrants") in a private placement. The Notes due 2008 were originally
convertible at $1.00 per share (the "Conversion Price") into 1,500,000 shares of
the Company's common stock, subject to anti-dilution and other adjustments. The
Initial Warrants, each immediately exercisable and expiring on December 5, 2011,
are exercisable at $1.10 per share, subject to anti-dilution and other
adjustments.

On February 20, 2007, when the market price of the Company's common stock was
$1.08 per share, the Company entered into a Purchase and Amendment Agreement
(the "Amendment"), amending the Securities Purchase Agreement entered into by
the Company on December 5, 2006 (the "Original Agreement" and as amended by the
Amendment, the "Agreement"), with several institutional and accredited investors
or purchasers pursuant to which the Company sold to the purchasers $1.2 million
aggregate principal amount of 8% senior convertible notes due February 2009 (the
"Notes due 2009" and with the Notes due 2008, the "Notes") and warrants to
purchase 360,000 shares of the common stock of the Company (the "Additional
Warrants" and with the Initial Warrants, the "Warrants"), in a private
placement. The transaction closed on February 22, 2007 (the "February 2007
financing"). The Notes due 2009 were originally convertible at $1.00 per share
into 1,200,000 shares of the Company's common stock, subject to anti-dilution
and other adjustments.

On April 30, 2007, the Company entered into Certificates of Adjustments to the
Notes and Warrants (the "Adjustments") to adjust certain provisions of the Notes
and Warrants as a consequence of the declaration by the Company of a ten percent
(10%) common stock dividend to common shareholders of record on February 15,
2007, payable February 28, 2007. As a result of the Adjustments, the conversion
price of the Notes was reduced to $0.90 per share, the Initial Warrants were
increased to 495,000 at an exercise price of $1.00 per share, and the Additional
Warrants were increased to 396,000 at an exercise price of $1.20 per share.

On June 26, 2007, the Company entered into an Amendment Agreement (the "Second
Amendment") with the purchasers to adjust certain provisions of the Notes and
Initial Warrants as a consequence of selling shares to a third party investor
for per share consideration less than the conversion price of the Notes and
exercise price of the Initial Warrants. As a result, the conversion price of the
Notes was reduced to $0.72 per share convertible into 3,713,892 shares of common
stock and the initial Warrants were increased to 594,001 at an exercise price of
$0.80 per share. The Second Amendment also deferred the June and July 2007
payments of the principal due under the Notes to August 1, 2007, extended the
filing deadline of the Registration Statement to July 9, 2007, reduced the
number of shares required to be registered under the Agreement to 130% of the
shares underlying the Notes and Warrants, and allowed for the inclusion of an
aggregate of 4,490,630 additional shares of common stock in any registration
statement filed by the Company in connection with the Agreement. In
consideration for these modifications, the Company agreed to pay the purchasers
liquidated damages, payable in 141,750 shares of common stock of the Company,
and warrants to purchase an aggregate of 200,000 shares of common stock of the
Company at an exercise price of $1.10 per share. The Company also agreed to
include the shares and warrants issued pursuant to the Second Amendment in the
registration statement required to be filed by the Company pursuant to the
Agreement.

The Notes provide for anti-dilution adjustments of issuable shares and the
conversion price should the Company issue common stock or common stock
equivalents for a price less than the conversion price, on or prior to the later
of 1) the earlier of (x) the date a registration statement is declared effective
by the SEC and (y) the two year anniversary of the issue date and 2) the six
month anniversary of the issue date. The Warrants provide for anti-dilution
adjustments of the issuable shares and the exercise prices thereof should the
Company issue common stock or common stock equivalents for a price less than the
exercise price of the Warrants, on or prior to the later of 1) the earlier of
(x) the date a registration statement is declared effective by the SEC and (y)
the two year anniversary of the issue date and 2) the six month anniversary of
the issue date. The anti-dilution provided by the Warrants calls for the
exercise price of the Warrants to adjust to 110% of the price of any dilutive
issuances, on a per share basis. After December 31, 2007 and if the daily volume
weighted average price of its common stock is equal to or greater than the
Forced Conversion Price (as defined) for 20 trading days occurring during any

                                       24
<PAGE>

period of thirty consecutive trading days, the Company has the right to require
the conversion of any unconverted Notes into shares of common stock. After
December 31, 2007, and if the daily volume weighted average price of its common
stock is equal to or greater than the $2.20 for 20 trading days occurring during
any period of thirty consecutive trading days, the Company has the right to
require the exercise of any unexercised Warrants into shares of common stock.

The Notes provide for quarterly interest to be paid in cash, or subject to
certain conditions, by issuing shares of common stock. If the Company is
eligible and elects to pay quarterly interest in stock, the price per share used
to calculate the number of shares due for interest will be calculated by
reducing the market price of the shares by 5% (as defined).

The Company will use the proceeds from the issuance of the Notes for general
working capital purposes and to increase the capacity of its product
distribution network.

Under terms of a registration rights agreement, the Company was obligated to
file a registration statement within 90 days of the closing date of the sale of
the Notes due 2008 for the resale of the shares of common stock underlying the
Notes, the Warrants and any other shares issuable pursuant to the terms of the
Notes or the Warrants and to cause the registration statement to become
effective within 180 days of the closing date. The Company is also required to
maintain the effectiveness of the registration statement until all shares have
been sold or may be sold without a registration statement.

The Company filed the required registration statement on July 3, 2007, which
became effective on October 2, 2007. If the Company issues additional common
stock or common stock equivalents for a price less than the Conversion Price, on
or prior to the later of 1) the earlier of (x) the date a registration statement
is declared effective by the SEC and (y) the two year anniversary of the issue
date and 2) the six month anniversary of the issue date of the Notes, the
investors will have the right, but not the obligation, to participate in such
issuance, upon the same terms as those offered, so that each Investor's
percentage ownership of the Company remains the same.

The Company paid fees of $40,000 related to the Notes. These cash fees have been
recorded as deferred offering costs and are being amortized over the life of the
Notes.

On January 1, 2007, we adopted Financial Accounting Standards Board (FASB) Staff
Position (FSP) Emerging Issues Task Force (EITF) 00-19-2, "Accounting for
Registration Payment Arrangements". This FASB staff position addresses how to
account for registration payment arrangements and clarifies that a financial
instrument subject to a registration payment arrangement should be accounted for
in accordance with other generally accepted accounting principles (GAAP) without
regard to the contingent obligation to transfer consideration pursuant to the
registration payment arrangement. Prior to the adoption of this FSP, the Company
classified as a note derivative liability and as a warrant liability, financial
instruments included in or issued in conjunction with our December 2006
financing, since the resale of the underlying shares issuable upon conversion of
the notes and exercise of the warrants was required to be registered with the
SEC, and the Company's failure to file, and obtain and maintain the
effectiveness of a registration statement would result in potential cash
payments which were not capped. The Company's adoption of this accounting
pronouncement as of January 1, 2007 resulted in a reclassification of the note
derivative liability to the note liability and the warrant liability to equity,
and an adjustment to the note discount to reflect the allocated value of the
warrant and a beneficial conversion feature, accreted to December 31, 2006, both
calculated in accordance with EITF Nos. 98-5, "Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios," and "EITF 00-27, "Application of Issue No. 98-5, to Certain
Convertible Instruments." The cumulative effect of this accounting change of
$24,000 was credited to the opening accumulated deficit balance as of January 1,
2007.

The Company allocated the note proceeds of $1.5 million from the December 2006
financing between the fair value of the notes and the fair value of the
warrants. The Company valued the warrants at $0.844 per share using the binomial
option pricing model with the following assumptions: risk free interest rate of
4.39%; effective dividend rate of 0.00%; volatility of 142.17%; and expected
term of 5 years. The relative fair value of the warrants is $303,000, which was
recorded as a discount to the notes, with a corresponding credit to equity, or

                                       25
<PAGE>

common stock. The Company determined that the proceeds allocated to the warrants
should be treated as equity in accordance with the provisions of EITF 00-19 and
FSP 00-19-2. The Company further determined that there was a beneficial
conversion feature associated with the notes of $138,000, calculated as the
difference between the fair value of the shares of common stock issuable upon
conversion of the notes and the proceeds allocated to the notes. The Company
recorded the amount of the beneficial conversion feature as an additional
discount to the notes, with a corresponding credit to equity, or common stock.
The aggregate amounts of the discounts to the notes was $441,000, which is being
amortized to interest expense using the effective interest method prescribed by
APB Opinion No. 21, "Interest on Receivables and Payables," over the life of the
notes. The effective interest rate of these notes is approximately 17.6% based
on the stated interest rate, the amount of amortized discount, the amount of
deferred offering costs attributable to the notes and their term.

In accordance with EITF 98-5 and EITF 00-27, the Company allocated the note
proceeds of $1.2 million from the February 2007 financing between the fair value
of the notes and the fair value of the warrants. The Company valued the warrants
at $0.97 per share using the binomial option pricing model with the following
assumptions: risk free interest rate of 4.69%; effective dividend rate of 0.00%;
volatility of 140%, and expected term of 4 years. The relative fair value of the
warrants is $272,000, which was recorded as a discount to the notes, with a
corresponding credit to equity or common stock. The Company determined that the
proceeds allocated to the warrants should be treated as equity in accordance
with the provisions of EITF 00-19 and FSP 00-19-2. The Company further
determined that there was a beneficial conversion feature associated with the
notes of $368,000, calculated as the difference between the fair value of the
shares of common stock issuable upon conversion of the notes and the proceeds
allocated to the notes. The Company recorded the amount of the beneficial
conversion feature as an additional discount to the notes, with a corresponding
credit to equity, or common stock. The aggregate amounts of the discounts to the
notes was $640,000, which is being amortized to interest expense using the
effective interest method prescribed by APB Opinion No. 21, "Interest on
Receivables and Payables," over the life of the notes. The effective interest
rate of these notes is approximately 46.7% based on the stated interest rate,
the amount of amortized discount, the amount of deferred offering costs
attributable to the notes and their term.

The Company was initially required to make monthly principal payments beginning
on June 1, 2007, in twelve equal installments. However, the note-holders have
extended the first payment to August 1, 2007, which was made by issuing common
stock. The initial first two payments, which were deferred, have extended the
maturity of the notes by two months. Under certain circumstances, the Company
may make all or a portion of these principal payments with common stock. The
Company may not issue its stock in payment of such principal at a price below
the lower of $0.75 per share or the adjusted conversion price in effect. If the
Company chooses to repay principal with common stock, it will be based on the
lower of a 10% discount to the lowest daily volume weighted average price for
any trading day among the immediately preceding ten consecutive trading days and
the conversion price in effect on such principal payment date.

Scheduled annual maturities for this long-term debt for years ending after
December 31, 2007 are as follows: $682,000 in 2008 (eight months).

The note agreements contain certain affirmative and restrictive covenants,
including a covenant requiring the Company to file, and achieve and maintain the
effectiveness of a registration statement. If the Company breaches any of the
covenants and if, after receiving notice from note holders, does not, within a
certain period of time, cure the breach, the note holders may call the loan,
thereby requiring the payment of the principal balance of the notes plus a 20%
penalty.

SEASONALITY AND QUARTERLY RESULTS

The Company's business is subject to seasonal influences. Sales volumes in this
industry typically slow down during the winter months, November to March in the
U.S. The Company intends to develop a wide auto distribution network to counter
any seasonality effects.

INFLATION

Our raw materials and finished products are sourced from stable,
cost-competitive industries. As such, we do not foresee any material
inflationary trends for our raw materials and finished goods sources.

                                       26
<PAGE>

USE OF ESTIMATES

The preparation of financial statements in conformity with U. S. generally
accepted accounting principles generally accepted in the United States of
America requires management of the Company to make estimates and assumptions
affecting the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, as
well as revenues and expenses during the reporting period. The amounts estimated
could differ from actual results.

CRITICAL ACCOUNTING POLICIES JUDGMENTS AND ESTIMATES

This management's discussion and analysis of our financial condition and results
of operations is based upon our consolidated financial statements, which have
been prepared in accordance with U.S. generally accepted accounting principles.

In preparing these financial statements, we are required to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosures of contingent assets and liabilities. On an
ongoing basis, we evaluate our estimates, including those related to doubtful
accounts, stock-based compensation, investments, goodwill and intangible assets
and income taxes as well as contingencies and litigation. We base our estimates
on historical experience and on various other assumptions that we believe are
reasonable, the results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates using different
assumptions or conditions. We believe the following critical accounting policies
reflect the more significant judgments and estimates used in the preparation of
our consolidated financial statements.

Revenue Recognition
-------------------

The Company records revenues only upon the occurrence of all of the following
conditions:

- The Company has received a binding purchase order or similar commitment from
the customer or distributor authorized by a representative empowered to commit
the purchaser (evidence of a sale);

- The purchase price has been fixed, based on the terms of the purchase order;

- The Company has delivered the product from its distribution center to a common
carrier acceptable to the purchaser. The Company's customary shipping terms are
FOB shipping point; and

- The Company deems the collection of the amount invoiced probable.

The Company provides no price protection. Product sales are net of promotional
discounts, rebates and return allowances. The Company does not recognize sales
taxes collected from customers as revenue.

Allowance for Doubtful Accounts
-------------------------------

The Company performs ongoing credit evaluations of its customers' financial
condition and, generally, requires no collateral from its customers. The Company
records an allowance for doubtful accounts receivable for credit losses at the
end of each period based on an analysis of individual aged accounts receivable
balances. As a result of this analysis, the Company believes that its allowance
for doubtful accounts is adequate at December 31, 2007 and 2006. If the
financial condition of the Company's customers should deteriorate, resulting in
an impairment of their ability to make payments, additional allowances may be
required.

Inventory Valuation
-------------------

We adjust the value of our inventory for estimated obsolescence or unmarketable
inventory equal to the difference between the cost of inventory and the
estimated market value based upon assumptions about future demand and market
conditions and development of new products by our competitors. Inventories
consist primarily of vehicles gas and electric, parts and supplies, and finished
goods and are carried at the lower of cost (first-in, first-out method) or
market.

Deferred Tax Asset Realization
------------------------------

We record a full valuation allowance to reduce our deferred tax assets to the
amount that is more likely than not to be realized. While we have considered
future taxable income and ongoing prudent and feasible tax planning strategies
in assessing the need for the valuation allowance, in the event we were to
determine that we would be able to realize our deferred tax assets in the future
in excess of its net recorded amount, an adjustment to the deferred tax asset
would increase income in the period such determination was made.

                                       27
<PAGE>

Classification of Financial Instruments with Characteristics of both Liability
------------------------------------------------------------------------------
and Equity
----------

We account for financial instruments that we have issued and that have
characteristics of both liability and equity in accordance with SFAS No. 150,
Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity. SFAS No. 150 specifies that mandatory redeemable
financial instruments are to be recorded as liabilities unless the redemption is
required to occur upon the liquidation or termination of the issuer. SFAS No.
150 also specifies that a financial instrument that embodies a conditional
obligation that an issuer may settle by issuing a variable number of its equity
shares is to be classified as a liability if, at inception, the value of the
obligation is based solely or predominantly on variations inversely related to
changes in the fair value of the issuer's equity shares. Should a financial
instrument not be classified as a liability under the provisions of SFAS No.
150, we further apply the criteria in Emerging Issues Task Force (EITF) Issue
No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company's Own Stock, which enumerates additional
criteria to determine the appropriate classification as liability or equity. We
also evaluate the anti-dilution and/or beneficial conversion features that may
be included in our financial instruments in accordance with the provisions of
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
which may classify the feature as an embedded derivative and require that the
financial instrument be bifurcated and the feature accounted for separately. We
evaluate each financial instrument on its own merits at inception or other
prescribed measurement or valuation dates and may engage the services of
valuation experts and other professionals to assist us in our detemination of
the appropriate classification.

Accounting for Stock-Based Compensation
---------------------------------------

Effective January 1, 2006, we adopted the fair value recognition provisions of
SFAS No. 123 (revised 2004), Share-Based Payment ("SFAS 123(R)"), using the
modified-prospective transition method. Under the fair value recognition
provisions of SFAS 123(R), share-based compensation cost is estimated at the
grant date based on the fair value of the award and is recognized as expense,
net of estimated pre-vesting forfeitures, ratably over the vesting period of the
award.

In addition, the adoption of SFAS 123R requires additional accounting related to
the income tax effects and disclosure regarding the cash flow effects resulting
from share-based payment arrangements. In January 2005, the SEC issued Staff
Accounting Bulletin ("SAB") No. 107, which provides supplemental implementation
guidance for SFAS 123R. We selected the Black-Scholes option-pricing model as
the most appropriate fair-value method for our awards. Calculating share-based
compensation expense requires the input of highly subjective assumptions,
including the expected term of the share-based awards, stock price volatility,
and pre-vesting forfeitures. The assumptions used in calculating the fair value
of stock-based awards represent our best estimates, but these estimates involve
inherent uncertainties and the application of management judgment. As a result,
if factors change and we use different assumptions, our share-based compensation
expense could be materially different in the future. In addition, we are
required to estimate the expected pre-vesting forfeiture rate and only recognize
expense for those shares expected to vest. If our actual forfeiture rate is
materially different from our estimate, our share-based compensation expense
could be significantly different from what we have recorded in the current
period. The total amount of stock-based compensation expense recognized during
the year ended December 31, 2007 was $ 16.9 million which has been recorded in
general and administrative expenses. At December 31, 2007, total unrecognized
estimated compensation expense related to non-vested stock options granted prior
to that date was $8.9million, which is expected to be recognized through 2010.

On November 10, 2005, the FASB issued FASB Staff Position No. FAS 123(R)-3
"Transition Election Related to Accounting for Tax Effects of Share-Based
Payment Awards " (FSP 123(R)-3). We adopted the alternative transition method
provided in the FASB Staff Position for calculating the tax effects of
stock-based compensation pursuant to SFAS 123R in the fourth quarter of fiscal
2006. The alternative

                                       28
<PAGE>

transition method includes simplified methods to establish the beginning balance
of the additional paid-in capital pool (APIC pool) related to the tax effects of
employee stock-based compensation, and to determine the subsequent impact on the
APIC pool and Consolidated Statements of Cash Flows of the tax effects of
employee stock-based compensation awards that are outstanding upon adoption of
SFAS 123R. The adoption did not have a material impact on our results of
operations and financial condition.

Prior to January 1, 2006, we accounted for share-based payments to our employees
and non-employee members of our board of directors under the recognition and
measurement provisions of Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees, and related guidance, as permitted by
SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), and amended
by SFAS No. 148, Accounting for Stock-Based Compensation-Transition and
Disclosure ("SFAS 148") . We did not recognize any significant share-based
employee compensation costs in our statements of operations prior to January 1,
2006, as options granted to employees and non-employee members of the board of
directors generally had an exercise price equal to the fair value of the
underlying common stock on the date of grant. As required by SFAS 148, prior to
the adoption of SFAS 123(R), we provided pro forma disclosure of net income
(loss) applicable to common shareholders as if the fair-value-based method
defined in SFAS No. 123 had been applied. In the pro forma information for
periods prior to 2006, we accounted for pre-vesting forfeitures as they
occurred. Our operating results for prior periods have not been restated.

ITEM 7.   FINANCIAL STATEMENTS.

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
and Shareholders of ZAP

We have audited the accompanying consolidated balance sheet of ZAP as of
December 31, 2007, and the related consolidated statement of operations,
shareholders' equity, and cash flows for the year ended December 31, 2007. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company's internal control over financial reporting. Our audit
includes consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, the financial statements audited by us present fairly, in all
material respects, the consolidated financial position of ZAP at December 31,
2007, and the consolidated results of its operations and its cash flows for the
year ended December 31, 2007, in conformity with U.S. generally accepted
accounting principles.


                                      /s/ Bagell, Josephs, Levine & Company, LLC
                                      ------------------------------------------
                                      Marlton, New Jersey
                                      March 30, 2008

                                       29
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
and Shareholders of ZAP

We have audited the accompanying consolidated statements of operations,
shareholders' equity, and cash flows of ZAP for the year ended December 31,
2006. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company's internal control over financial reporting. Our audit
includes consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations, changes in
shareholders' equity and cash flows of ZAP for the year ended December 31, 2006
in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for share-based compensation when it adopted
SFAS No. 123 (revised 2004), "Share-Based Payments" in accounting for its
employee stock-based compensation, applying the modified prospective method
effective January 1, 2006.


                                      /s/ ODENBERG, ULLAKKO, MURANISHI & CO. LLP
                                      ------------------------------------------
                                      San Francisco, California
                                      March 30, 2007

                                       30
<PAGE>

                              ZAP AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2007
                        (In thousands, except share data)

                                     ASSETS

Current assets:
 Cash and cash equivalents                                         $      4,339
 Accounts receivable, net of allowance of $172                              373
 Inventories                                                              1,437
 Prepaid non-cash professional fees                                         283
 Other prepaid expenses and other current assets                            747
                                                                   ------------
  Total current assets                                                    7,179

Property and equipment, net                                               4,471

Other assets:
 Patents and trademarks, net                                                 10
 Prepaid non-cash professional fees, less current portion                    82
 Deferred offering costs                                                     20
 Deposits and other                                                         176
                                                                   ------------
                                                                   $     11,938
                                                                   ============

                      LIABILITIES AND SHAREHOLDERS' EQUITY


Current liabilities:
 Current portion of long-term debt                                 $        104
 Accounts payable
                                                                            128
 Accrued liabilities                                                      2,259
 Deferred revenue                                                           752
 8% Senior convertible debt, net of discount of $136                        546

                                                                   ------------
  Total current liabilities                                               3,789

Secured convertible note, less current portion                            1,724
                                                                   ------------
Total Liabilities                                                         5,513
                                                                   ------------
Commitments and contingencies

Shareholders' equity:

 Common stock; 400 million shares authorized; no par value;
  57,478,158 shares issued and outstanding                              122,672
 Common Stock issued as loan collateral                                  (1,549)
  Accumulated deficit
                                                                       (114,698)
                                                                   ------------
  Total shareholders' equity                                              6,425
                                                                   ------------
                                                                   $     11,938
                                                                   ============

The accompanying notes are an integral part of these consolidated financial
statements.

                                       31
<PAGE>

                              ZAP AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
                      (In thousands; except per share data)

<TABLE><CAPTION>
                                                                  Year ended December 31
                                                               -----------------------------
                                                                   2007             2006
                                                               ------------     ------------
<S>                                                            <C>              <C>
Net sales                                                      $      5,712     $     10,830
Cost of goods sold (exclusive of amortization
  of smart license)                                                   4,937           10,305
                                                               ------------     ------------
Gross profit                                                            775              525
                                                               ------------     ------------
Operating expenses:
 Sales and marketing                                                  1,508            1,319
 General and administrative (non-cash of
  $21,735 in 2007 and $8,749 in 2006, respectively)                  25,284           15,452
 Research and development                                               616              715
 Impairment loss on Smart Automobile license,                           175            2,448
    fixed assets and goodwill
                                                               ------------     ------------
Total operating expenses                                             27,583           19,934
                                                               ------------     ------------
Loss from operations                                                (26,808)         (19,409)
                                                               ------------     ------------
Other income (expense):
 Gain on settlement of Smart Auto liability                            --              7,051
 Gain on revaluation of put-option, warrant and
  note derivative  liabilities                                         --                581
 Interest expense, net (non-cash of $0 in 2007                       (1,393)            (241)
   and $207 in 2006, respectively)
 Other income, net                                                      199              107

                                                               ------------     ------------
                                                                     (1,194)           7,498
                                                               ------------     ------------
Loss before income taxes                                            (28,002)         (11,911)

Provision for income taxes                                               (4)              (4)
                                                               ------------     ------------
Net loss                                                       $    (28,006)    $    (11,915)
                                                               ============     ============

Net loss per share attributable to common shareholders:
Basic and diluted                                              $      (0.59)    $      (0.31)

Weighted average number of common shares outstanding:
Basic and diluted                                                    47,822           39,021
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                       32
<PAGE>

                              ZAP AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                 (In thousands)

<TABLE><CAPTION>
                                                                                                  Common        Notes
                                             Convertible                                          stock      Receivable
                                           preferred stock         Common stock                   issued        from
                                       ----------------------  --------------------- Accumulated  as loan      Share-
                                        Shares       Amount     Shares      Amount     Deficit   collateral    holders      Total
                                       ---------    ---------  ---------   ---------  ---------   ---------   ---------   ---------

<S>                                         <C>     <C>           <C>      <C>        <C>         <C>         <C>         <C>
Balance at December 31, 2005                7.50    $   7,500     32,585   $  78,451  $ (74,753)  $  (3,529)  $     (56)  $   7,613

Issuance of common stock for:
  Inventory and other assets                                           5           3                                              3
  Consulting and other services                                    1,786       1,585                    780          56       2,421
  Employee compensation                                              435         388                                            388
  Cash                                                             1,129         876                  1,200                   2,076
  Exercise of warrants and options                                 2,174       2,061                                          2,061
  Settlement of Smart Auto liability       (7.50)      (7,500)       300         405                                         (7,095)


Fair value of warrants and options
 issued for:
  Consulting and other services                                                2,278                                          2,278
  Employee compensation                                                        3,662                                          3,662
  Settlement of Smart Auto liability                                             950                                            950
  Reclassification of warrant liability                                          568                                            568


Net loss                                    --           --         --          --      (11,915)                   --       (11,915)

                                       ---------    ---------  ---------   ---------  ---------   ---------   ---------   ---------
Balance at December 31, 2006                --           --       38,414      91,227    (86,668)     (1,549)       --         3,010

Adjustment to retained earnings                                                             (24)                                (24)
   on adoption of EITF00-19-2
   (See Note 6)
Issuance of common stock for:
  Inventory and other assets                                         242         237                                            237
  Consulting and other services                                    3,448       3,415                                          3,415
  Employee compensation                                              855         821                                            821
  Cash                                                             6,656       5,700                                          5,700
  Exercise of warrants and options                                   955         719                                            719
  Principle payments and conversion
   of convertible debt                                             2,931       2,166                                          2,166
  Stock dividend                                                   3,977        --                                             --

Fair value of warrants and options
 issued for:
  Cash                                                                           200                                            200
  Warrants issued to convertible
   debt holders                                                                1,256                                          1,256
  Consulting and other services                                                  457                                            457
  Employee compensation                                                       16,474                                         16,474
 Net loss                                                                               (28,006)                            (28,006)
                                       ---------    ---------  ---------   ---------  ---------   ---------   ---------   ---------
Balance at December 31, 2007                --      $    --       57,478   $ 122,672   (114,698)  $  (1,549)  $    --     $   6,425
                                       =========    =========  =========   =========  =========   =========   =========   =========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                       33
<PAGE>

                              ZAP AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (In thousands)

<TABLE><CAPTION>
                                                                Year ended December 31
                                                            ------------------------------
                                                                2007              2006
                                                            ------------      ------------
<S>                                                         <C>               <C>
Operating activities:
  Net loss                                                  $    (28,006)     $    (11,915)
  Items not requiring the current use of cash:
    Gain on settlement on Smart Auto liability                      --              (7,051)
    Impairment write down of Smart Auto license and
     equipment                                                      --               2,191
    Impairment of goodwill                                           175              --
    Amortization of note discount and deferred offering
     Costs                                                           958              --
    Stock-based employee compensation                             17,295             4,050
    Stock-based compensation for consulting and other
      services                                                     4,368             4,699
    Stock-based compensation for interest and other
      penalities                                                     314
    Depreciation and amortization                                    318             1,434
    Impairment of fixed assets                                      --                 257
    Gain(Loss)on revaluation of warrant and
       note derivative liabilities                                  --                 158
    Gain(Loss)on revaluation of put option liability                --                (739)
    Allowance for doubtful accounts                                   (7)             (154)
    Non-cash interest expense attributable to
      discount on convertible                                       --                 207
    Changes in other items affecting operations:
      Accounts receivable                                           (142)              115
      Inventories                                                  1,004              (609)
      Advance on Smart car inventory                                --               1,378
      Prepaid expenses                                              (296)             (267)
      Other assets                                                   (68)              260
      Accounts payable                                              (121)               61
      Accrued liabilities                                           (678)              921
      Deferred revenue                                              (438)              140
                                                            ------------      ------------
      Cash used for operating activities                          (5,324)           (4,864)
                                                            ------------      ------------
Investing activities:
  Acquisition of property and equipment                             (189)              (77)
  Proceeds from sale of equipment                                   --                  35
                                                            ------------      ------------
      Cash used for investing activities                            (189)              (42)
                                                            ------------      ------------
Financing activities:
  Issuance of common stock                                         5,900             2,076
  Exercise of warrants and options                                   719             2,061
  Proceeds from debt, net of issuance costs                        1,185             1,475
  Payments on long-term debt                                        (112)              (93)
                                                            ------------      ------------
      Cash provided by financing activities                        7,692             5,519
                                                            ------------      ------------

Increase in cash and cash equivalents                              2,179               613

Cash and cash equivalents at beginning of year                     2,160             1,547
                                                            ------------      ------------

Cash and cash equivalents at end of year                    $      4,339      $      2,160
                                                            ============      ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                       34
<PAGE>

                              ZAP AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND OPERATIONS:

ZAP ("The Company" or "ZAP"), was incorporated in California in September 1994.
ZAP markets many forms of advanced transportation, including alternative energy
and fuel efficient automobiles, motorcycles, bicycles, scooters, personal
watercraft, hovercraft, neighborhood electric vehicles, commercial vehicles and
more. Additionally, the Company produces an electric scooter, known as the
ZAPPY, using parts manufactured by various contractors. The Company's business
strategy has been to develop, acquire and commercialize electric vehicles and
electric vehicle power systems, which have fundamental practical and
environmental advantages over available internal combustion modes of
transportation that can be produced commercially on an economically competitive
basis. The Company intends to further expand its technological expertise through
an aggressive plan of acquisitions of companies with exciting new products in
the advanced transportation industry and strategic alliances with certain
manufacturers, distributors and sales organizations. The Company's business goal
is to become the largest and most complete distribution portal for advanced
transportation (fuel efficient) and electric vehicles. In 2007, the Company
continued to accelerate its market positioning in the electric vehicle industry.
The Company is now focused on creating a distribution channel for its vehicles,
with special emphasis on entrepreneurs in the power-sport and independent auto
industry.

A summary of significant accounting policies is as follows:

PRINCIPLES OF CONSOLIDATION
---------------------------

The accompanying consolidated financial statements include the accounts of ZAP,
RAP Group ("RAP"), Voltage Vehicles ("VV"), ZAP Rentals and ZAP Stores for the
years ended December 31, 2007 and 2006. On October 1, 2006 RAP surrendered its
Dealer Vehicle License and began doing business under the existing Dealer
Vehicle License of Voltage Vehicles. All subsidiaries are 100% owned by ZAP. All
significant inter-company transactions and balances have been eliminated.

REVENUE RECOGNITION
-------------------

The Company records revenues only upon the occurrence of all of the following
conditions:

- The Company has received a binding purchase order or similar commitment from
the customer or distributor authorized by a representative empowered to commit
the purchaser (evidence of a sale);

- The purchase price has been fixed, based on the terms of the purchase order;

- The Company has delivered the product from its distribution center to a common
carrier acceptable to the purchaser. The Company's customary shipping terms are
FOB shipping point; and

- The Company deems the collection of the amount invoiced probable.

The Company provides no price protection. Product sales are net of promotional
discounts, rebates and return allowances. The Company does not recognize sales
taxes collected from customers as revenue.

DEFERRED REVENUE
----------------

Voltage Vehicles sells licenses to auto dealerships under the ZAP name. The term
of the license agreements range from four to five years and among other things,
call for the licensee to purchase a minimum number of vehicles from ZAP each
year. As of December 31, 2007, the Company had collected a total of $1,230,000
related to these agreements and has classified them as current deferred revenue.
The Company's policy is to begin recognizing revenue when we begin delivering a
substantial number of vehicles to these dealerships on a regular basis. During
the first quarter of 2006, the Company began recognizing revenue on various
license agreements on a straight-line basis over the term of the agreements.

                                       35
<PAGE>

The Company has recognized $171,000 of revenue and recorded $267,000 in changes
to the license agreements for the year ended December 31, 2007 resulting in an
ending balance in deferred revenue of $752,000.

ALLOWANCE FOR DOUBTFUL ACCOUNTS
-------------------------------

The Company performs ongoing credit evaluations of its customers' financial
condition and, generally, requires no collateral from its customers. The Company
records an allowance for doubtful accounts receivable for credit losses at the
end of each period based on an analysis of individual aged accounts receivable
balances. As a result of this analysis, the Company believes that its allowance
for doubtful accounts is adequate at December 31, 2007. If the financial
condition of the Company's customers should deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required.

CASH AND CASH EQUIVALENTS
-------------------------

The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents. The Company maintains
the majority of its cash balances with one financial institution. At times the
balances may exceed federally insured limits. The Company has not experienced
any losses in such accounts and believes it is not exposed to any significant
credit risk on cash and cash equivalents.

INVENTORIES
-----------

Inventories consist primarily of vehicles (gas and electric), parts and
supplies, and finished goods and are carried at the lower of cost (first-in,
first-out method) or market.

PROPERTY AND EQUIPMENT
----------------------

Property and equipment consists of land, building and improvements, machinery
and equipment, office furniture and equipment, vehicles, and leasehold
improvements. Property and equipment is stated at cost and is depreciated or
amortized using straight-line and accelerated methods over the asset's estimated
useful life. Costs of maintenance and repairs are charged to expense as
incurred; significant renewals and betterments are capitalized. Estimated useful
lives are as follows:

      Machinery and equipment                5 years
      Computer equipment and software        3-5 years
      Office furniture and equipment         5 years
      Vehicles                               5 years
      Leasehold improvements                 10 years or life of lease,
                                             whichever is shorter
      Building and improvements              30 years

                                       36
<PAGE>

PATENTS AND TRADEMARKS
----------------------

Patents and trademarks consist of costs expended to perfect certain patents and
trademarks acquired and are amortized over ten years. For each of the years
ended December 31, 2007 and 2006, amortization expense was approximately $21,000
and $33,000, respectively.

LONG-LIVED ASSETS
-----------------

Long-lived assets are comprised of property and equipment and intangible assets.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. An estimate of undiscounted future cash flows produced by the
asset, or by the appropriate grouping of assets, is compared to the carrying
value to determine whether impairment exists. If an asset is determined to be
impaired, the loss is measured based on quoted market prices in active markets,
if available. If quoted market prices are not available, the estimate of fair
value is based on various valuation techniques, including a discounted value of
estimated future cash flow and fundamental analysis. The Company reports an
asset to be disposed of at the lower of its carrying value or its estimated net
realizable value.

Goodwill
--------

Goodwill resulted from the Company's acquisition of Voltage Vehicles in 2002.The
Company tests for goodwill impairment annually in December, absent earlier
indicators of impairment. The valuation of goodwill is based on the Company's
discounted projected cash flows of VV. The valuation of goodwill related to VV
indicated that the fair value of goodwill at December 31, 2007 was less than its
carrying value. Accordingly, the Company recorded a goodwill impairment charge
of $175,000 in 2007.

ADVERTISING
-----------

The cost of advertising is expensed as incurred. Advertising and marketing
expenses amounted to $199,000 and $320,000 in the years ended December 31, 2007
and 2006, respectively.

WARRANTY
--------

The Company provides 30 to 90 day warranties on its personal electric products
and records the estimated cost of the product warranties at the date of sale.
The estimated cost of warranties has not been significant to date. Should actual
failure rates and material usage differ from our estimates, revisions to the
warranty obligation may be required.

The Company has provided a 6 month warranty for the Xebra(R) vehicles. At
December 31, 2007, the Company has recorded a warranty liability for $293,000
for estimated repair costs.

SHIPPING AND HANDLING COSTS
---------------------------

Shipping and handling costs have been included in cost of goods sold.

RESEARCH AND DEVELOPMENT
------------------------

Research and product development costs are expensed as incurred.

USE OF ESTIMATES
----------------

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions affecting the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, as well as revenues and expenses during the reporting
period. The amounts estimated could differ from actual results.

Risks and uncertainties

The Company relies on one manufacturer, Shandong Jindalu Vehicle Co., LTD of
China ("Shandong") to supply 100% of Xebra Electric Vehicles. If Shandong is
unable to supply electric vehicles and the Company is unable to obtain
alternative sources of supply for these products and services, the Company might
not be able to fill existing backorders and/or to sell more Xebra Electric
Vehicles.

                                       37
<PAGE>

FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------

The Company measures its financial assets and liabilities in accordance with
U.S. generally accepted accounting principles. The fair value of a financial
instrument is the amount at which the instrument could be exchanged in a current
transaction between willing parties. For certain of the Company's financial
instruments, including cash equivalents, accounts receivable, accounts payable
and accrued liabilities, the carrying amount approximates fair value because of
the short maturities. The fair value of debt is not determinable due to the
terms of the debt and the lack of a comparable market for such debt.

INCOME TAX POLICIES
-------------------

The Company accounts for income taxes using an asset and liability method for
financial accounting and reporting purposes. Deferred income tax assets and
liabilities are determined based on differences between the financial reporting
and tax bases of assets and liabilities, operating loss and tax credit
carry-forwards and are measured using the current enacted tax rates and laws.
The Company has made no provision for income taxes except for the minimum state
tax due in any period presented in the accompanying consolidated financial
statements because it incurred operating losses in each of these periods.

The Company analyzes its deferred tax assets with regard to potential
realization. The Company has established a valuation allowance on its deferred
tax assets to the extent that management has determined that it is more likely
than not that some portion or all of the deferred tax asset will not be realized
based upon the uncertainty of their realization. The Company has considered
estimated future taxable income and ongoing prudent and feasible tax planning
strategies in assessing the amount of the valuation allowance.

COMPREHENSIVE LOSS
------------------

The Company has no components of other comprehensive loss other than its net
loss, and, accordingly, its comprehensive loss is equivalent to its net loss for
the periods presented.

STOCK-BASED COMPENSATION
------------------------

We have stock compensation plans for employees and directors, which are
described in Note 8 of the consolidated financial statements. We adopted
Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based
Payment," ("SFAS 123R") effective January 1, 2006. SFAS 123R requires the
recognition of the fair value of stock-based compensation in net income (loss).
We recognize the stock-based compensation expense over the requisite service
period of the individual grantees, which generally equals the vesting period.
All of our stock-based compensation is accounted for as an equity instrument.
Prior to January 1, 2006, we followed Accounting Principles Board Opinion 25,
Accounting for Stock Issued to Employees" ("APB 25") and related interpretations
in accounting for our stock compensation.

On January 26, 2007, the Company extended the expiration date of 21.8 million
warrants previously issued to employees and officers by five years to July 1,
2012, with new exercise prices ranging from $1.00 to $1.20. As a result of the
modification of the warrants, the Company determined the fair value of the
warrants immediately prior to and after the modification. The incremental
difference in value resulted in the recognition of $11.7 million in non-cash
compensation expense during the first quarter of 2007. The Company valued the
modified warrants at $0.57 per share using a Black-Scholes option pricing model
with the following assumptions: risk free interest rate of 4.98%; dividend rate
of 0.00%; volatility of 123%, and expected term of 2.7 years.

Under the provisions of SFAS 123R, we recorded $16.9 million and $4.1 million of
stock-based compensation, net of estimated forfeitures, in general and
administrative expenses, in our consolidated statement of operations for the
years ended December 31, 2007 and 2006, respectively. As of December 31, 2007
the total unrecognized stock-based compensation balance for unvested options was
$8.9 million, which is expected to be amortized through 2010. We utilized the
Black-Scholes valuation model for estimating the fair value of the stock-based

                                       38
<PAGE>

compensation granted after the adoption of SFAS 123R, with the following range
of assumptions:

                                           Year ended           Year ended
                                        December 31, 2007    December 31, 2006
                                        -----------------    -----------------
Expected dividend yield                                 0%                   0%
Expected volatility                        114.3 to 126.2%      134.0 to 154.4%
Risk-free interest rate                      4.16 to 4.98%        4.63 to 5.21%
Expected life (in years) from grant date       2.5 to 5.75         0.50 to 6.50
Exercise price                              $0.91 to $1.32       $0.50 to $2.80

The dividend yield of zero is based on the fact that we have never paid cash
dividends and have no present intention to pay cash dividends. Expected
volatility is based upon historical volatility of our common stock over the
period commensurate with the expected life of the options. The risk-free
interest rate is derived from the average U.S. Treasury Constant Maturity Rate
during the period, which approximates the rate in effect at the time of the
grant. Our unvested options vest over the next three years. Our options
generally have a 10-year term. The expected term is calculated using the
simplified method prescribed by the SEC's Staff Accounting Bulletin 107. Based
on the above assumptions, the weighted-average fair values of the options
granted under the stock option plans for the years ended December 31, 2007 and
2006 was $1.00 and $0.57, respectively. As required by SFAS No. 123R, we now
estimate forfeitures of employee stock options and recognize compensation cost
only for those awards expected to vest. Forfeiture rates are determined based on
historical experience. Estimated forfeitures are now adjusted to actual
forfeiture experience as needed.

Theoretical valuation models and market-based methods are evolving and may
result in lower or higher fair value estimates for share-based compensation. The
timing, readiness, adoption, general acceptance, reliability and testing of
these methods is uncertain. Sophisticated mathematical models may require
voluminous historical information, modeling expertise, financial analyses,
correlation analyses, integrated software and databases, consulting fees,
customization and testing for adequacy of internal controls. Market-based
methods are emerging that, if employed by us, may dilute our earnings per share
and involve significant transaction fees and ongoing administrative expenses.
The uncertainties and costs of these extensive valuation efforts may outweigh
the benefits to investors.

NET LOSS PER SHARE ATTRIBUTABLE TO COMMON SHAREHOLDERS
------------------------------------------------------

Basic net loss per share is computed by dividing net loss attributable to common
shareholders by the weighted average number of shares of common stock
outstanding during the year. The computation of diluted earnings per common
share is similar to the computation of basic net loss per share attributable to
common shareholders, except that the denominator is increased for the assumed
conversion of convertible securities and the exercise of options and warrants to
the extent they are dilutive using the treasury stock method. The weighted
average shares used in computing basic and diluted net loss per share
attributable to common shareholders were the same for the two years ended
December 31, 2007 and 2006. Options, warrants and convertible debt for
68,172,005shares and 64,770,809 shares were excluded from the computation of
loss per share at December 31, 2007 and 2006, respectively, as their effect is
anti-dilutive to. Common shares issued as collateral for a loan that has not
been finalized totaling 1.292 million shares have been excluded from the
weighted average number of shares outstanding for 2007 and 2006, respectively.
The 2006 loss per share and the weighted average common shares outstanding
reflect the 10% stock dividend paid in February 2007.

                                       39
<PAGE>

RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------

In June 2006, the EITF reached a consensus on Issue No. 06-3, HowTaxes Collected
from Customers and Remitted to Governmental Authorities Should Be Presented in
the Income Statement" ("EITF 06-3"). The scope of EITF 06-3 includes sales, use,
value added and some excise taxes that are assessed by a governmental authority
on specific revenue-producing transactions between a seller and customer. EITF
06-3 states that a company should disclose its accounting policy (i.e., gross or
net presentation) regarding the presentation of taxes within its scope, and if
significant, these disclosures should be applied retrospectively to the
financial statements for all periods presented. EITF 06-3 is effective for
interim and annual reporting periods beginning after December 15, 2006. The
adoption of EITF 06-3 did not have a material effect on the Company's financial
position, results of operations or cash flows.

In July 2006, the FASB issued FASB Interpretation No. 48 Accounting for
Uncertainty in Income Taxes ("FIN No.48"), which prescribes a recognition
threshold and measurement process for recording in the financial statements
uncertain tax positions taken or expected to be taken in a tax return.
Additionally, FIN No. 48 provides guidance on the derecognition, classification,
accounting in interim periods and disclosure requirements for uncertain tax
positions. The accounting provisions of FIN No. 48 will be effective for fiscal
years beginning after December 15, 2006.. The Company adopted FIN No. 48 as of
January 1, 2007. See Note 7 of the notes to the consolidated financial
statements for further analysis of the impact of FIN No. 48 on our consolidated
financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS
No. 157 establishes a framework for measuring the fair value of assets and
liabilities. This framework is intended to provide increased consistency in how
fair value determinations are made under various existing accounting standards
which permit, or in some cases require, estimates of fair market value. SFAS 157
is effective beginning the first fiscal year that begins after November 15,
2007. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2
Effective Date of FASB Statement No. 157 ("FSP FAS 157-2"), which defers the
effective date of SFAS 157 for all non-financial assets and non-financial
liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually), for fiscal years
beginning after November 15, 2008 and interim periods within those fiscal years
for items within the scope of FSP FAS 157-2. The Company has not yet evaluated
the impact SFAS No. 157 may have on its financial position and results of
operations.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities ("SFAS 159"). SFAS 159 expands
opportunities to use fair value measurement in financial reporting and permits
entities to choose to measure many financial instruments and certain other items
at fair value. SFAS 159 is effective for fiscal years beginning after November
15, 2007. Management has not yet decided if the Company will choose to measure
any eligible financial assets and liabilities at fair value.

On December 21, 2006, the FASB issued FASB Staff Position ("FSP") EITF 00-19-2,
Accounting for Registration Payment Arrangements. This FSP addresses how to
account for registration payment arrangements and clarifies that a financial
instrument subject to a registration payment arrangement should be accounted for
in accordance with other generally accepted accounting principles ("GAAP")
without regard to the contingent obligation to transfer consideration pursuant
to the registration payment arrangement. This accounting pronouncement further
clarifies that a liability for liquidated damages resulting from registration
statement obligations should be recorded in accordance with SFAS No. 5,
Accounting for Contingencies, when the payment of liquidated damages becomes
probable and can be reasonably estimated. This FSP is effective for companies
with fiscal years ending on or after December 15, 2006. The Company adopted EITF
00-19-2 on January 1, 2007 and the cumulative effect of this accounting change
of $24,000 was credited to the opening accumulated deficit balance.

NOTE 2 - SMART AUTOMOBILE LICENSE

On April 19, 2004, ZAP entered into an Exclusive Purchase, License and Supply
Agreement with Smart-Automobile LLC ("SA"), a California limited liability
company, to distribute and manufacture Smart Cars. Smart is the brand name for a

                                       40
<PAGE>

3-cyclinder gas turbo engine car manufactured by Daimler Chrysler AG, which can
achieve estimated fuel economy of 40 miles per gallon. SA is not affiliated with
Daimler Chrysler, but is a direct importer.

Under the agreement ZAP was SA's exclusive distributor and licensee of the right
to manufacture and distribute Smart cars in the United States and the
non-exclusive distributor and licensee outside of the United States for a period
of ten years. Subject to the terms of the agreement, ZAP will pay SA a license
and distribution fee of $10,000,000: a $1 million payment in cash was made upon
execution of the agreement, $1 million will be payable in cash ratably
commencing with the delivery of the first 1,000 Smart Cars, and $8 million was
paid in ZAP preferred stock.

A more detailed agreement was signed and completed on October 25, 2004. Under
this agreement, SA exchanged their original Preferred Shares for new Preferred
Shares with the designation of SA. These SA preferred shares convert to ZAP
common shares under the following formula: For every 1,000 Smart vehicles
delivered to ZAP in the years 2004, 2005 and 2006 which are fully EPA compliant
to sell in the United States as new cars, the holder shall convert 500 shares of
preferred stock SA to $500,000 of common stock, and allow the holder to receive
505,000 warrants with an exercise price of $2.50 per share exercisable through
July 7, 2009, or when all the preferred have been converted. During 2004, ZAP
allowed SA to convert 500 preferred shares to $500,000 of common stock prior to
delivering any EPA compliant Smart Cars.

The Company recorded the cost of the Smart Automobile license at $10.6 million,
based on: 1) the $10 million the Company paid to Smart Automobile LLC as
consideration for a Purchase, License and Supply Agreement dated April 19, 2004;
and 2) the fair value of five-year warrants issued under the Agreement for the
purchase of 505,000 common shares at $2.50 per share and expiring in July 1,
2009. The warrants were valued at $1.16 per share using the Black-Scholes option
pricing model with the following assumptions: expected dividend yield of 0.0%;
risk free interest rate of 3.08%; contractual life of 4.5 years; and volatility
of 229.43%.

In the fourth quarter of 2005, the Company filed a lawsuit against Daimler
Chrysler Corporation ("Daimler Chrysler") and others alleging that Daimler
Chrysler has engaged in a series of anti-competitive tactics aimed at defaming
ZAP and disrupting its third party relationships including this arrangement.
Shortly thereafter, the Company commenced its annual impairment assessment. An
independent valuation of the Smart Automobile license as of December 31, 2005
estimated the fair value to be $3.1 million with a remaining life of two years
which was less than the $10.6 million recorded cost of the license. The carrying
cost of the license was $8.8 million prior to the impairment calculation and
accordingly, the Company recorded an impairment charge of $5.7 million for the
year ended December 31, 2005. The valuation of the license was based on the
Company's discounted projected cash flows from projected sales of Smart Cars
over the estimated life of the license agreement.

In June 2006, ZAP agreed in principle to amend its agreement with Smart Auto
that was originally signed in April 2004. As a result, Smart Auto returned to
ZAP all of the remaining preferred shares, or 7,500 preferred shares valued at
$7.5 million, in exchange for, among other things, 300,000 common shares valued
at $405,000 and 1 million warrants with an exercise price of $1.75 per share
valued at $950,000 using the Black-Scholes option pricing model. In addition,
ZAP's obligation to pay accrued license fees of $906,000 at June 30, 2006 was
canceled. As a result ZAP recorded a liability to Smart Auto of $7 million at
June 30, 2006.

In September 2006, the Company further amended and renegotiated its agreement
with SA for the Smart Car, due to the unavailability of Smart Cars and
Daimler-Chrysler's announcement to begin selling Smart Cars in the U.S. in 2008.
This negotiation superseded all previous license and other distribution or asset
agreements between ZAP and SA. The renegotiated agreement released ZAP from any
remaining obligations to Smart Auto under its previous agreements and any
liability to SA and resulted in the reversal of approximately $7 million in
liabilities owed and the corresponding recognition of $7 million in other
income. The Company also recognized an impairment loss on the remaining value of
the license with SA of approximately $2.2 million. Amortization expense of the
license was $1,056,000 for the year ended December 31, 2006. As of September 30,
2006, the Company no longer distributes Smart Cars.

                                       41
<PAGE>

NOTE 3 - INVENTORIES

Inventories at December 31, 2007 are summarized as follows (thousands):

      Vehicles-conventional                    $    245
      Advanced technology vehicles                1,181
      Parts and supplies                             46
      Finished goods                                267
                                               --------
                                                  1,739
      Less - inventory reserve                     (302)
                                               --------
                                               $  1,437
                                               ========

Inventory reserve policy

The Company records inventory at the lower of cost or market and establishes
reserves for slow moving or excess inventory, product obsolescence and valuation
impairment. In determining the adequacy of its reserves, at each reporting
period the Company analyzes the following, among other things:

   o    Current inventory quantities on hand;
   o    Product acceptance in the marketplace;
   o    Customer demand;
   o    Historical sales;
   o    Forecasted sales;
   o    Product obsolescence; and
   o    Technological innovations.

Any modifications to the Company's estimates of its reserves are reflected in
cost of goods sold within the statement of operations during the period in which
such modifications are determined by management. Changes in the Company's
inventory reserve during the year ended December 31, 2007 are as follows (in
thousands):

      Balance as of January 1, 2007            $    518
      Provision for slow moving inventory           155
      Write-off of slow moving inventory           (371)
                                               --------
      Balance as of December 31, 2007          $    302
                                               ========

NOTE 4 - PROPERTY AND EQUIPMENT

Property and equipment at December 31, 2007 are summarized as follows
(thousands):

      Land                                     $  1,078
      Buildings and improvements                  3,184
      Machinery and equipment                       120
      Computer equipment and software               229
      Office furniture and equipment                 64
      Leasehold improvements                         47
      Vehicles                                      609
                                               --------
                                                  5,331
      Less - accumulated depreciation and
        amortization                               (860)
                                               --------
                                               $  4,471
                                               ========

The land and building and certain equipment, with a net book value of $2,703,000
at December 31, 2007, are pledged as security for certain indebtedness (see Note
7). Depreciation and amortization expense for the years ended December 31, 2007
and 2006 was approximately $288,000 and $345,000, respectively.

NOTE 5 - OTHER ACCRUED LIABILITIES

Accrued liabilities at December 31, 2007 consisted of the following (in
thousands):

                                       42
<PAGE>

      Accrued professional fees                $    987
      Accrued payables                              134
      Customer deposits                             282
      Warrant liabilities                           292
      Other accrued expenses                        564
                                               --------
                                               $  2,259
                                               ========

NOTE 6 - DEBT

The Company has a $2 million convertible note due in March 2025, with annual
interest at 7.5% , the note is payable with equal principal and interest
payments over the next 240 months. The note holder has the option to convert
some or all of the unpaid principal and accrued interest to shares of ZAP's
common stock at $2.15 per share or an agreed upon conversion price (as defined).
The note was issued in exchange for the purchase of the Company's new corporate
headquarters and is secured by this property. The note has a balance of $
1,809,000 at December 31, 2007. Scheduled annual maturities for this long-term
debt for years ending after December 31, 2007 are as follows: $104,000-2008;
$104,000-2009; $104,000-2010; $104,000 - 2011; $104,000 - 2012; and $1,289,000-
thereafter.

CONVERTIBLE DEBT
----------------

8% Senior Convertible Notes

On December 5, 2006, when the market price of the Company's common stock was
$0.89 per share, the Company entered into a Securities Purchase Agreement with
three institutional and accredited investors or purchasers pursuant to which the
Company sold to the purchasers $1.5 million aggregate principal amount of 8%
senior convertible notes due December 5, 2008 (the "Notes due 2008") and
warrants to purchase 450,000 shares of common stock of the Company (the "Initial
Warrants") in a private placement. The Notes due 2008 were originally
convertible at $1.00 per share (the "Conversion Price") into 1,500,000 shares of
the Company's common stock, subject to anti-dilution and other adjustments. The
Initial Warrants, each immediately exercisable and expiring on December 5, 2011,
are exercisable at $1.10 per share, subject to anti-dilution and other
adjustments.

On February 20, 2007, when the market price of the Company's common stock was
$1.08 per share, the Company entered into a Purchase and Amendment Agreement
(the "Amendment"), amending the Securities Purchase Agreement entered into by
the Company on December 5, 2006 (the "Original Agreement" and as amended by the
Amendment, the "Agreement"), with several institutional and accredited investors
or purchasers pursuant to which the Company sold to the purchasers $1.2 million
aggregate principal amount of 8% senior convertible notes due February 2009 (the
"Notes due 2009" and with the Notes due 2008, the "Notes") and warrants to
purchase 360,000 shares of the common stock of the Company (the "Additional
Warrants" and with the Initial Warrants, the "Warrants"), in a private
placement. The transaction closed on February 22, 2007 (the "February 2007
financing"). The Notes due 2009 were originally convertible at $1.00 per share
into 1,200,000 shares of the Company's common stock, subject to anti-dilution
and other adjustments.

On April 30, 2007, the Company entered into Certificates of Adjustments to the
Notes and Warrants (the "Adjustments") to adjust certain provisions of the Notes
and Warrants as a consequence of the declaration by the Company of a ten percent
(10%) common stock dividend to common shareholders of record on February 15,
2007, payable February 28, 2007. As a result of the Adjustments, the conversion
price of the Notes was reduced to $0.90 per share, the Initial Warrants were
increased to 495,000 at an exercise price of $1.00 per share, and the Additional
Warrants were increased to 396,000 at an exercise price of $1.20 per share.

On June 26, 2007, the Company entered into an Amendment Agreement (the "Second
Amendment") with the purchasers to adjust certain provisions of the Notes and
Initial Warrants as a consequence of selling shares to a third party investor
for per share consideration less than the conversion price of the Notes and
exercise price of the Initial Warrants. As a result, the conversion price of the
Notes was reduced to $0.72 per share convertible into 3,713,892 shares of common
stock and the initial Warrants were increased to 594,001 at an exercise price of
$0.80 per share. The Second Amendment also deferred the June and July 2007

                                       43
<PAGE>

payments of the principal due under the Notes to August 1, 2007, extended the
filing deadline of the Registration Statement to July 9, 2007, reduced the
number of shares required to be registered under the Agreement to 130% of the
shares underlying the Notes and Warrants, and allowed for the inclusion of an
aggregate of 4,490,630 additional shares of common stock in any registration
statement filed by the Company in connection with the Agreement. In
consideration for these modifications, the Company agreed to pay the purchasers
liquidated damages, payable in 141,750 shares of common stock of the Company,
and warrants to purchase an aggregate of 200,000 shares of common stock of the
Company at an exercise price of $1.10 per share. The Company also agreed to
include the shares and warrants issued pursuant to the Second Amendment in the
registration statement required to be filed by the Company pursuant to the
Agreement.

The Notes provide for anti-dilution adjustments of issuable shares and the
conversion price should the Company issue common stock or common stock
equivalents for a price less than the conversion price, on or prior to the later
of 1) the earlier of (x) the date a registration statement is declared effective
by the SEC and (y) the two year anniversary of the issue date and 2) the six
month anniversary of the issue date. The Warrants provide for anti-dilution
adjustments of the issuable shares and the exercise prices thereof should the
Company issue common stock or common stock equivalents for a price less than the
exercise price of the Warrants, on or prior to the later of 1) the earlier of
(x) the date a registration statement is declared effective by the SEC and (y)
the two year anniversary of the issue date and 2) the six month anniversary of
the issue date. The anti-dilution provided by the Warrants calls for the
exercise price of the Warrants to adjust to 110% of the price of any dilutive
issuances, on a per share basis. After December 31, 2007 and if the daily volume
weighted average price of its common stock is equal to or greater than the
Forced Conversion Price (as defined) for 20 trading days occurring during any
period of thirty consecutive trading days, the Company has the right to require
the conversion of any unconverted Notes into shares of common stock. After
December 31, 2007, and if the daily volume weighted average price of its common
stock is equal to or greater than the $2.20 for 20 trading days occurring during
any period of thirty consecutive trading days, the Company has the right to
require the exercise of any unexercised Warrants into shares of common stock.

The Notes provide for quarterly interest to be paid in cash, or subject to
certain conditions, by issuing shares of common stock. If the Company is
eligible and elects to pay quarterly interest in stock, the price per share used
to calculate the number of shares due for interest will be calculated by
reducing the market price of the shares by 5% (as defined).

The Company will use the proceeds from the issuance of the Notes for general
working capital purposes and to increase the capacity of its product
distribution network.

Under terms of a registration rights agreement, the Company was obligated to
file a registration statement within 90 days of the closing date of the sale of
the Notes due 2008 for the resale of the shares of common stock underlying the
Notes, the Warrants and any other shares issuable pursuant to the terms of the
Notes or the Warrants and to cause the registration statement to become
effective within 180 days of the closing date. The Company is also required to
maintain the effectiveness of the registration statement until all shares have
been sold or may be sold without a registration statement.

The Company filed the required registration statement on July 3, 2007, which
became effective on October 2, 2007. If the Company issues additional common
stock or common stock equivalents for a price less than the Conversion Price, on
or prior to the later of 1) the earlier of (x) the date a registration statement
is declared effective by the SEC and (y) the two year anniversary of the issue
date and 2) the six month anniversary of the issue date of the Notes, the
investors will have the right, but not the obligation, to participate in such
issuance, upon the same terms as those offered, so that each Investor's
percentage ownership of the Company remains the same.

The Company paid fees of $40,000 related to the Notes. These cash fees have been
recorded as deferred offering costs and are being amortized over the life of the
Notes.

On January 1, 2007, we adopted Financial Accounting Standards Board (FASB) Staff
Position (FSP) Emerging Issues Task Force (EITF) 00-19-2, "Accounting for

                                       44
<PAGE>

Registration Payment Arrangements". This FASB staff position addresses how to
account for registration payment arrangements and clarifies that a financial
instrument subject to a registration payment arrangement should be accounted for
in accordance with other generally accepted accounting principles (GAAP) without
regard to the contingent obligation to transfer consideration pursuant to the
registration payment arrangement. Prior to the adoption of this FSP, the Company
classified as a note derivative liability and as a warrant liability, financial
instruments included in or issued in conjunction with our December 2006
financing, since the resale of the underlying shares issuable upon conversion of
the notes and exercise of the warrants was required to be registered with the
SEC, and the Company's failure to file, and obtain and maintain the
effectiveness of a registration statement would result in potential cash
payments which were not capped. The Company's adoption of this accounting
pronouncement as of January 1, 2007 resulted in a reclassification of the note
derivative liability to the note liability and the warrant liability to equity,
and an adjustment to the note discount to reflect the allocated value of the
warrant and a beneficial conversion feature, accreted to December 31, 2006, both
calculated in accordance with EITF Nos. 98-5, "Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios," and "EITF 00-27, "Application of Issue No. 98-5, to Certain
Convertible Instruments." The cumulative effect of this accounting change of
$24,000 was credited to the opening accumulated deficit balance as of January 1,
2007.

The Company allocated the note proceeds of $1.5 million from the December 2006
financing between the fair value of the notes and the fair value of the
warrants. The Company valued the warrants at $0.844 per share using the binomial
option pricing model with the following assumptions: risk free interest rate of
4.39%; effective dividend rate of 0.00%; volatility of 142.17%; and expected
term of 5 years. The relative fair value of the warrants is $303,000, which was
recorded as a discount to the notes, with a corresponding credit to equity, or
common stock. The Company determined that the proceeds allocated to the warrants
should be treated as equity in accordance with the provisions of EITF 00-19 and
FSP 00-19-2. The Company further determined that there was a beneficial
conversion feature associated with the notes of $138,000, calculated as the
difference between the fair value of the shares of common stock issuable upon
conversion of the notes and the proceeds allocated to the notes. The Company
recorded the amount of the beneficial conversion feature as an additional
discount to the notes, with a corresponding credit to equity, or common stock.
The aggregate amounts of the discounts to the notes was $441,000, which is being
amortized to interest expense using the effective interest method prescribed by
APB Opinion No. 21, "Interest on Receivables and Payables," over the life of the
notes. The effective interest rate of these notes is approximately 17.6% based
on the stated interest rate, the amount of amortized discount, the amount of
deferred offering costs attributable to the notes and their term.

In accordance with EITF 98-5 and EITF 00-27, the Company allocated the note
proceeds of $1.2 million from the February 2007 financing between the fair value
of the notes and the fair value of the warrants. The Company valued the warrants
at $0.97 per share using the binomial option pricing model with the following
assumptions: risk free interest rate of 4.69%; effective dividend rate of 0.00%;
volatility of 140%, and expected term of 4 years. The relative fair value of the
warrants is $272,000, which was recorded as a discount to the notes, with a
corresponding credit to equity or common stock. The Company determined that the
proceeds allocated to the warrants should be treated as equity in accordance
with the provisions of EITF 00-19 and FSP 00-19-2. The Company further
determined that there was a beneficial conversion feature associated with the
notes of $368,000, calculated as the difference between the fair value of the
shares of common stock issuable upon conversion of the notes and the proceeds
allocated to the notes. The Company recorded the amount of the beneficial
conversion feature as an additional discount to the notes, with a corresponding
credit to equity, or common stock. The aggregate amounts of the discounts to the
notes was $640,000, which is being amortized to interest expense using the
effective interest method prescribed by APB Opinion No. 21, "Interest on
Receivables and Payables," over the life of the notes. The effective interest
rate of these notes is approximately 46.7% based on the stated interest rate,
the amount of amortized discount, the amount of deferred offering costs
attributable to the notes and their term.

The Company was initially required to make monthly principal payments beginning
on June 1, 2007, in twelve equal installments. However, the note-holders have
extended the first payment to August 1, 2007, which was made by issuing common

                                       45
<PAGE>

stock. The initial first two payments, which were deferred, have extended the
maturity of the notes by two months. Under certain circumstances, the Company
may make all or a portion of these principal payments with common stock. The
Company may not issue its stock in payment of such principal at a price below
the lower of $0.75 per share or the adjusted conversion price in effect. If the
Company chooses to repay principal with common stock, it will be based on the
lower of a 10% discount to the lowest daily volume weighted average price for
any trading day among the immediately preceding ten consecutive trading days and
the conversion price in effect on such principal payment date.

Scheduled annual maturities for this long-term debt for years ending after
December 31, 2007 are as follows: $682,000 in 2008 (eight months).

The note agreements contain certain affirmative and restrictive covenants,
including a covenant requiring the Company to file, and achieve and maintain the
effectiveness of a registration statement. If the Company breaches any of the
covenants and if, after receiving notice from note holders, does not, within a
certain period of time, cure the breach, the note holders may call the loan,
thereby requiring the payment of the principal balance of the notes plus a 20%
penalty.

NOTE 7 - INCOME TAXES

The provision for income taxes for all periods presented in the consolidated
statements of operations represents minimum California franchise taxes. Income
tax expense differed from the amounts computed by applying the U.S. federal
income tax rate of 34% to pretax losses as a result of the following:

                                                 2007        2006
                                               --------    --------

      Computed expected tax expense            $ (9,370)   $ (4,057)
      Losses and credits for which no
          benefits have been recognized           8,419       2,800
      Stock grants and warrants not
          deductible for income tax purposes        952       1,244
      Meals and entertainment expenses, and
          officers life insurance not
          deductible for income tax purposes          8          14
      R&D Credit                                     (8)       --
      State tax expense, net of federal
          income tax benefit                          3           3
                                               --------     --------
                                               $      4    $      4
                                               ========    ========

THE TAX EFFECT OF TEMPORARY DIFFERENCES THAT GIVE RISE TO SIGNIFICANT PORTIONS
OF THE DEFERRED TAX ASSETS AT DECEMBER 31, 2007 IS PRESENTED BELOW:

                                                 2007
                                               --------
      Deferred tax assets:
        Net operating loss carryovers          $ 28,560
        Fixed assets, due to differences in
          depreciation                              346
        Inventory                                    96
        Accrued liabilities                         500
        Stock based compensation                  5,790
        Notes receivable reserve                    428
        Intangible assets due to impairment         201
        Other                                       694
                                               --------

      Total gross deferred tax assets            36,615
      Valuation allowance                       (36,615)
                                               --------

      Net deferred tax assets                  $   --
                                               ========

The net change in the valuation allowance for the year ended December 2007 was
an increase of $9.3 million. Because there is uncertainty regarding the

                                       46
<PAGE>

Company's ability to realize its deferred tax assets, a 100% valuation allowance
has been established.

As of December 31, 2007, the Company had federal tax net operating loss
carry-forwards of approximately $68.4 million, which will expire in the years
2012 through 2027. The Company also has federal research and development credit
carryforwards as of December 31, 2007 of approximately $147,000 which will
expire in the years 2012 through 2026. State tax net operating loss
carryforwards were approximately $60 million as of December 31, 2007. The state
net operating loss carryforwards will expire in the years 2012 through 2018.

The Company's ability to utilize its net operating loss and research and
development tax credit carryforwards may be limited in the future if it is
determined that the Company experienced an ownership change, as defined in
Section 382 of the Internal Revenue Code. Federal and State tax laws impose
substantial restrictions on the utilization of net operating loss and credit
carryforwards in the event of an "ownership charge" for tax purposes as defined
in the Internal Revenue Code Section 382.

The Company adopted the provisions of FIN 48 on January 1, 2007. The Company did
not have any unrecognized tax benefits at January 1, 2007, and does not have any
unrecognized tax benefits at December 31, 2007 and, as a result, there was no
effect on the Company's financial condition or results of operations as a result
of implementing FIN 48.

The Company's policy is to recognize interest and penalties accrued on any
unrecognized tax benefits as a component of income tax expense. As of the date
of adoption of FIN 48, the Company did not have any accrued interest or
penalties associated with any unrecognized tax benefits, nor was any interest
expense recognized for the year ended December 31, 2007.

NOTE 8 - STOCK OPTIONS

During 2002 as part of the confirmed plan of reorganization, ZAP created an
Incentive Stock Option Plan ("2002 Plan"). During 2007, ZAP created a new
Incentive Stock Option Plan ("2007 Plan").

Options to purchase common stock are granted by the Board of Directors under
four Stock Option Plans, referred to as the 2007,2006, 2002 and 1999 plans.
Options granted may be incentive stock options (as defined under Section 422 of
the Internal Revenue Code) or nonstatutory stock options. The numbers of shares
available for grant under the 2007, 2006, 2002 and 1999 Plans are
10,000,000,4,000,000, 10,000,000 and 1,500,000 respectively. Options are granted
at no less than fair market value on the date of grant. Options granted in 2007
and 2006 generally become exercisable as they vest over a three year period, and
expire ten years after the date of grant.

Option activity under the2007, 2006, 2002 and 1999 plans is as follows
(thousands):

<TABLE><CAPTION>
                                        2007 Plan                 2006 Plan                2002 Plan                1999 Plan
                                   -------------------      --------------------      --------------------      -------------------
                                               Weighted                  Weighted                  Weighted                 Weighted
                                               Average                   Average                   Average                  Average
                                  Number of    Exercise    Number of     Exercise    Number of     Exercise    Number of    Exercise
                                   Shares       Price       Shares        Price       Shares        Price       Shares       Price
                                   -------------------      --------------------      --------------------      -------------------
<S>                                <C>          <C>         <C>           <C>         <C>           <C>         <C>          <C>
Outstanding at January 1, 2006       --           --          --            --         6,262        $ 1.04         155       $ 1.20
Granted                              --           --         1,367        $ 0.92         612          0.57         208         1.11
Exercised                            --           --          --            --          (619)         0.34        --          --
Canceled                             --           --          --            --          (400)         1.07        --          --
                                   ------       ------      ------        ------      ------        ------      ------       ------
Outstanding at December 31, 2006     --           --         1,367          0.92       5,855          0.99         363         1.15
Granted                             1,000         1.03       2,974          1.02
Exercised                            --           --           (33)         0.74        (277)         0.74        --          --
Canceled                             --           --          --            --          --            --          --          --
                                   ------       ------      ------        ------      ------        ------      ------       ------
Outstanding at December 31, 2007    1,000       $ 1.03       4,308        $ 1.01       5,578        $ 0.98         390       $ 1.04
                                   ======       ======      ======        ======      ======        ======      ======       ======
</TABLE>

                                       47
<PAGE>

Note: The exercise prices were adjusted for a 10% stock dividend effective in
February 2008.

The weighted average fair value of options granted during the years ended
December 31, 2007 and 2006 was $1.07 and $0.57, respectively.

The following information applies to options outstanding at December 31, 2007:

<TABLE><CAPTION>

                                            2007 Plan        2006 Plan       2002 Plan        1999 Plan
                                          -------------    -------------   -------------    -------------
<S>                                       <C>              <C>             <C>              <C>
 Range of exercise prices                 $1.03 - $1.03    $2.80 - $0.88   $2.80 - $0.25    $1.20 - $1.11
 Weighted average remaining life (years)       10.5              9               8               9.5
 Options exercisable                         125,000         2,951,260       5,578,485         262,167
 Weighted average exercise price              $1.03            $1.02           $0.96           $ 1.04
</TABLE>

The fair value of each option and warrant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions:

                                              2007                2006
                                         ---------------     ----------------
 Dividends                                    None                None
 Expected volatility                      114.00-152.00      134.00 - 154.43%
 Risk free interest rate                   3.20-4.98%          4.63 - 5.21%
 Expected life                           2.50-5.75 years     0.50 - 6.5 years

At December 31, 2007, the Company has outstanding stock options for employees to
purchase 11,277,385 shares , at exercise prices ranging from $0.23 to $1.20

NOTE 9 - MAJOR CUSTOMERS

During 2007 ,Voltage Vehicles had established relationships with 57 dealers
nationwide. 2 of our dealers have purchased over $250,000 of Xebras each that
make up 22 % in total of its sales.

NOTE 10 - COMMITMENTS

Distribution Agreement
----------------------

In May of 2007, ZAP signed a distribution agreement with PML FlightLink Limited
("PML") for the purchase of an advanced propriety wheel motor and control
system. ZAP received the exclusive rights to use this system in its current and
future product line. In conjunction with the agreement with PML, ZAP has
committed to an initial order of approximately $10 million in PML wheel motors,
subject to terms and conditions agreed on by the parties. A commercial product
has not been provided to the Company as of March 28, 2008.

China Joint Venture
-------------------
On September 17, 2007, ZAP entered into a shareholders' agreement to form a
joint venture with Youngman Automobile Co., Ltd. ("Youngman") also known as
Youngman Automotive Group, a leading maker of luxury motor coaches and
high-quality commercial trucks in China. ZAP and Youngman have agreed to pursue
the joint venture under EV Holdings Limited, a newly formed corporation based in
Hong Kong ("EV Holdings").

Under the agreement, ZAP and Youngman will jointly pursue the manufacture,
marketing and distribution of electric and hybrid vehicles for the worldwide
passenger car, truck and bus markets. The joint venture, EV Holdings, will also
focus on the development and manufacturing of electric charging infrastructure.
The joint venture partners have agreed to invest a total of $100 million into
the new joint venture by December 31, 2008 (Zap to invest $49 million and
Youngman to invest $51 million). The agreement also provides that Youngman shall
have rights to control the manufacturing of products licensed by EV Holdings,
and that EV Holdings will sell its products to ZAP and Youngman for resale
within exclusive territories worldwide.

                                       48
<PAGE>

Albert Lam, formerly the CEO of Lotus Engineering and a Director of ZAP as of
October 22, 2007, has been appointed by the Company and Youngman to serve as
Chairman of the Board of Directors of EV Holdings, which shall initially consist
of three directors. ZAP CEO Steven Schneider also agreed to serve as a director
on the board, and a third director shall be selected and appointed by Youngman.

The shareholders agreement for EV Holdings provides that the company will
reserve shares for future grants to key employees, on terms to be set from time
to time by its board of directors. The shareholders agreement may be terminated
by either ZAP or Youngman with 90 days advance notice if the other party
materially breaches the agreement, liquidates, or undergoes a change of
corporate control.

The Company presently rents its warehouse under an operating lease that expires
in December 2008. The monthly rent is adjusted annually to reflect the average
percentage increase in the Consumer Price Index. The Company rents the location
of its car outlet and another warehouse from the Company's CEO (see Note 14).
Rent expenses under all leases were approximately $323,000 and $300,000 in 2007
and 2006, respectively.

NOTE-11 SHAREHOLDERS' EQUITY

STOCK DIVIDEND
--------------

On November 9, 2006, ZAP's Board of Directors approved a 10% stock dividend
which was issued, effective February 28, 2007, to all shareholders of record as
of February 15, 2007.

COMMON STOCK
------------

During our annual meeting of shareholders held in July of 2007, an amendment to
the Company's Amended and Restated Articles of Incorporation was approved to
increase the authorized common stock from 200 million to 400 million shares.

2007 ISSUANCES
--------------

STOCK ISSUED FOR ASSETS

In 2007, the Company issued stock for inventory and assets and recorded the cost
at the intrinsic value of the stock or the fair value of the assets, whichever
is more reliably measurable. During 2007, 242,000 shares were issued for
purchase of inventory and certain assets

STOCK ISSUED FOR SERVICES. In 2007, the Company issued shares of its common
stock for consulting and other services and employee compensation. The stock
grants were recorded at the intrinsic value of the stock on the date of grant.
During 2007, the Company issued grants for 3,448,000 shares as consideration
under agreements for consulting and related services, and 855,000 shares were
issued for employee compensation.

STOCK ISSUED FOR CASH. During 2007, the Company raised $5.7 million in cash
through the issuance of 6,656,000 shares of common stock. Another 955,000 shares
were issued due to the conversions of options and warrants and resulted in cash
of $719,000.

STOCK ISSUED FOR CONVERSION OF SENIOR CONVERTIBLE DEBT. During 2007 the Company
issued 2,931,000 shares due to the conversion of the 8% Senior Convertible Debt
into shares of common stock.

STOCK DIVIDEND. In February, the Company issued 3,977,000 shares common stock
for the 10% stock dividend.

2006 ISSUANCES

STOCK ISSUED FOR ASSETS

In 2006, the Company issued stock for inventory and assets and recorded the cost
at the intrinsic value of the stock or the fair value of the assets, whichever
is more reliably measurable. During 2006, 4,441 shares with value of $3,230 were
issued for purchase of inventory and certain assets. In 2005, under the terms of

                                       49
<PAGE>

the purchase of a building and certain other assets, the Company was obligated
to issue additional shares of common stock for no additional consideration if at
the end of one year the market price of ZAP's common shares was less than the
market price of the date of issuance. At December 31, 2006, the remaining put
option liability related to this building purchase was recorded at $230,105, to
reflect the remaining amount due to the seller.

STOCK ISSUED FOR SERVICES
In 2006, the Company issued shares of its common stock for consulting and other
services and employee compensation. The stock grants were recorded at intrinsic
value of the stock on the grant date. During 2006, the Company issued grants for
2,436,000 shares, including 650,000 collateral shares, as consideration under
agreements for consulting, legal and other services. The Company also issued
435,000 shares for employee compensation.

STOCK ISSUED FOR CASH. During 2006, the Company raised $2.076 million in cash
through the issuance of 2,129,000 shares of common stock, including 1,000,000
shares of collateral stock. In addition, the Company issued 2,173,870 shares for
$2,060,000 upon exercises of options and warrants.

STOCK ISSUED AS COLLATERAL - In December 2004, the Company issued 2.9 million
common shares as collateral for a $1 million loan. The $3.529 million market
value of these shares at the date of issuance was recorded in common stock with
an offsetting contra equity account. These shares were previously issued to
Mercatus Partners LLP in January 2003 as collateral for a loan that never
funded. The shares were reported as lost to the Company in December 2003. In
December 2004, the shares were reissued to Mercatus Partners who then assigned
the shares and their interests to Phi-Nest Fund, L.P. as collateral for the $1
million loan commitment. The Company amended the Loan Agreement allowing them to
purchase 500,000 shares for $1.16 per share. On March 30, 2006, the Company
received $500,000 in net proceeds from the sale of 500,000 of the shares and the
collateralized shares were reduced to 2,441,176 shares. In September of 2006,
the Company signed a Settlement Agreement with Phi-Nest Fund,L.P.requiring that
the common stock being held as collateral be transferred to an independent third
party (Michael C. Sher dba the Law Offices of Michael C. Sher), to hold the
securities in a depository account pending the possible funding of a loan by
January of 2007. In return, Phi-Nest Fund, L.P., received for consulting
services 150,000 shares of the collateral stock and forgiveness of a note
receivable for $56,000 owed by a cousin of Steven Schneider, ZAP CEO. As a
result, the Company recognized $236,000 in non cash charges in the accompanying
2006 consolidated statement of operations. Later in September, the Board of
Directors approved the sale of 500,000 of the collateral stock to a qualified
investor with proceeds of $487,500 received by the Company in October of 2006.
Also in October 2006, the Company authorized the issuance of 250,000 shares of
the collateral stock to International Monetary Group, a merchant banking company
that was to procure financing for the Company, and 250,000 of the collateral
stock to Michael C. Sher for consulting services and recognized $600,000 in
non-cash consulting expense.

In 2007, Michael C. Sher dba the Law Offices of Michael C. Sher who is holding
the restricted common stock of 1,291,176 shares, has refused to release the
stock to the Company due to a dispute over an alleged debt obligation which
Michael C. Sher dba the Law Offices of Michael C. Sher believes the Company owes
to his investment firm. The parties settled the litigation in December, 2007,
providing each other with general releases of all claims. In connection with the
settlement of this matter and the matter International Monetary Group, Inc., a
Delaware corporation; and Michael C. Sher dba the Law Offices of Michael C. Sher
v. ZAP Corporation, a California corporation; and Steven Schneider, an
individual, Sher returned stock certificates representing 1,431,294 shares of
ZAP's common stock to Company for cancellation and ZAP issued 387,500 shares of
ZAP common stock to IMG. Although the parties agreed to the settlement, the
stock was not transferred until January 2008, thus completing the transaction.

Warrants

On January 26, 2007,the Board of Directors extended by five years through July
1,2012, the expiration date of a certain number of the Company's warrants,
Series B through K. These warrants were issued for executive incentives and by
the plan of reorganization. The exercise prices of the warrants were also
revised in prices ranging from $0.91 to $1.08.

The Board of Directors has also established the following restricted classes of
warrants: Series $1.10, Series $1.50, Series $1.75, Series $2.00, Series $2.50,
Series $3.05, Series $3.25, Series $3.50, Series $4.00, Series $4.05, Series

                                       50
<PAGE>

$4.50, Series $4.75, Series $5.00, and Series $5.50, with various expiration
periods.

The Board of Directors of ZAP has the right to (i) decrease the exercise price
of the warrants, (ii) increase the life of the warrants in which event the
exercise price may be increased, or (iii) make such other changes as the Board
of Directors of ZAP deems necessary and appropriate under the circumstances
provided the changes contemplated do not violate any statutory or common law.

Shares acquired through exercises of warrants for all Series other than Series
B, C, D and K are restricted as to sale. However, the warrants may be assigned,
sold, or transferred by the holder without restriction.

Series B, C, and D warrants not exercised may be redeemed by ZAP for a price of
$0.01 per warrant upon thirty (30) days' written notice to the holders thereof;
provided, however, that if not all unexercised warrants in a particular series
are redeemed, then the redemption shall be pro-rated equally among the holders
of unexercised warrants in the series.

Total warrants outstanding at December 31, 2007 are summarized as follows (in
thousands):

                                     Number of   Exercise     Expiration
                                     Warrants    Price        Dates
                                     --------    -----        -----
      Series B-Unrestricted             3,127     1.08        7-1-12
      Series B-2-Restricted             2,053     1.08        7-1-12
      Series C-Unrestricted             6,045     1.08        various
      Series C-2-Restricted             1,294     1.08        7-1-12
      Series D-Unrestricted             6,649     1.08        various
      Series D-2-Restricted             1,294     1.08        various
      Series K-Unrestricted             4,356     0.91        7-1-12
      Series K-2-Restricted             5,796     0.91        7-1-12
      $1.00 Warrants-Restricted         3,043     1.00        7-1-12
      $1.10 Warrants Unrestricted         794     1.10        6-26-12
      $1.20 Warrants-Restricted         5,565     1.08        various
      $1.32 Warrants -Unrestricted        432     1.32        2-20-12
      $1.50 Warrants Restricted         2,049     1.36        1-2-12
      $1.75 Warrants Restricted         1,100     1.59        6-18-08
      $2.00 Warrants Restricted           385     1.82        various
      $2.50 Warrants Restricted         2,684     2.27        various
      $3.05 Warrants Restricted         1,125     3.05        2-15-08
      $3.25 Warrants Restricted           330     2.95        various
      $3.50 Warrants Restricted           550     3.18        7-20-09
      $4.00 Warrants Restricted           363     3.64        2-15-08
      $4.05 Warrants Restricted           563     4.05        2-15-08
      $4.50 Warrants Restricted           550     4.09        7-20-09
      $4.75 Warrants Restricted           563     4.75        2-15-08
      $5.00 Warrants Restricted           823     4.55        12-1-07
      $5.50 Warrants Restricted           550     5.00        7-20-09
                                     --------
                                       52,083
                                     ========

REPLACEMENT WARRANTS
--------------------

On July 1, 2004, the B and B-2 warrants and C and C-2 warrants expired, and
replacement warrants were issued. The Company issued replacement B and B-2
warrants to purchase 15,199,373 common shares at $1.26 per share, and
replacement C and C-2 warrants to purchase 8,988,743 common shares at $5.00 per
share. These replacement warrants are nonforfeitable and vested immediately, and
expired on January 1, 2005. The Company recorded compensation expense totaling
$2.5 million for replacement warrants held by current employees based on the
intrinsic value of the warrants. The Company also recorded prepaid professional
fees of $5.1 million for replacement warrants held by consultants currently
providing consulting services to the Company. The prepaid fees are being charged
to expense over the terms of the related consulting agreements. The consulting
expense was calculated using the Black-Scholes option-pricing model with the
following assumptions: expected dividend yield of 0.0%; risk free interest rate
of 1.64%; contractual life of 6 months; and volatility of 163.4%. For warrants
issued to investors and to consultants no longer providing consulting services

                                       51
<PAGE>

to the Company, there was no accounting consequence resulting from the
replacements.

MODIFIED WARRANTS
-----------------

On January 25, 2007, the Board of Directors extended by five years through July
1, 2012, the expiration date of certain of the Company's warrants, Series B
through K. These warrants were issued within the Plan of Reorganization in July
of 2002 to officers, directors, ZAP employees and shareholders. The exercise
prices of the warrants were also revised from prices ranging from $1.00 to $8.00
to prices ranging from $0.91 to $1.08. As a result of the modification of the
warrants, the Company determined the fair value of the warrants immediately
prior to and after the modification. The incremental difference in value
resulted in the recognition of $11.7 million in non-cash compensation expense
during the first quarter of 2007.

Warrants issued in 2007
-----------------------

During 2007 the Company issued warrants in connection with raising capital and
license fees. In addition, during 2007 the Company issued warrants to purchase
an aggregate of 497,000 shares of its common stock under agreements with
vendors, employees, and consultants to perform legal, financial, business
advisory and other services. The warrant grants to vendors and consultants were
non-forfeitable and fully vested at the date of issuance and were valued using
the Black-Scholes option pricing model with the following range of assumptions:

                                                Low                      High
                                               ------                   ------
      Exercise price per share                 $ 1.00                   $ 1.32
      Market price                               1.00                     1.15
      Assumptions:
            Expected dividend yield                 0%                     0 %
            Risk free rate of return             4.24%                   4.64%
            Contractual life                3.8 years                  5 years
            Volatility                            115%                    123%
            Fair market value         $0.84 per share         $.098 per share

Pursuant to the requirements of FASB Statement No. 123 and EITF 96-18 and 00-18
related to accounting for stock-based compensation, the Company recognized
non-cash general and administrative expense in the amount of $457,190
attributable to the warrants issued to consultants at the date of grant during
2007.

Warrants issued in 2006
-----------------------

During 2006 the Company issued warrants in connection raising capital and
settlement of the Smart Auto liability. In addition, during 2006 the Company
issued warrants to purchase an aggregate of 4,191,272 shares of its common stock
under agreements with vendors, employees, and consultants to perform legal,
financial, business advisory and other services. The warrant grants to vendors
and consultants were non-forfeitable and fully vested at the date of issuance
and were valued using the Black-Scholes option pricing model with the following
range of assumptions:

                                                Low                      High
                                               ------                   ------
      Exercise price per share                 $ 1.00                   $ 2.00
      Market price                               0.32                     2.08
      Assumptions:
            Expected dividend yield                 0%                       0%
            Risk free rate of return              4.9%                    2.02%
            Contractual life                 8 months                  5 years
            Volatility                          134.2%                   143.6%
            Fair market value                  $ 0.06                   $ 1.21

Pursuant to the requirements of FASB Statement No. 123 and EITF 96-18 and 00-18
related to accounting for stock-based compensation, the Company recognized
non-cash general and administrative expense in the amount of $2.3 million
attributable to the warrants issued to consultants at the date of grant during
2006.

                                       52
<PAGE>

NOTE 12 - RELATED PARTY

Consulting Agreements
---------------------

On September 1, 2007, the Company and Mr. Albert Lam, entered into an
Independent Consulting Agreement ("Consulting Agreement"). Pursuant to the
Consulting Agreement, Mr. Lam was to consult and advise the Company in the areas
of Chinese manufacturing, facilities, tooling, financing, and contract
negotiations on an independent consultant basis. Mr. Lam's compensation under
the Consulting Agreement was: 200,000 shares of the Company's common stock
valued at $194,000, issued under the Company's 2007 Consultant Stock Plan (the
"Plan"); a warrant to purchase 200,000 shares of the Company's common stock
valued at $131,000, expiring five years after grant, with an exercise price of
$1.00 per share, issued under the Plan; and a warrant to purchase 1,000,000
shares of the Company's common stock valued at $654,000, expiring five years
after grant, with an exercise price of $1.00 per share and a net exercise
provision.

The Consulting Agreement expired on September 30, 2007, and expense totaling
$979,000 related to the consulting agreement was recorded in the third quarter
of 2007.

On October 22, 2007, the Board of Directors ("Board") of ZAP ("Company")
appointed Albert Lam as a director of the Company.

Consulting services and other services
--------------------------------------

In September of 2006, the Company canceled a shareholder note of $56,000 due by
the cousin of Steven Schneider, the CEO of ZAP in exchange for consulting
services.

Rental agreements
-----------------

The Company rents office space, land from its CEO and major shareholder. These
properties are used to operate the car outlet and to store inventory. Rental
expense was approximately $84,000 and $96,500 for the years ended December 31,
2007 and 2006, respectively.

Inventory Purchase
------------------

In December 2005, the Company purchased inventory from a related entity where
one of ZAP's officers and Directors is also members of its Board of Directors.
The transaction resulted in a payable due to the related Company of $204,000 at
December 31, 2006. During the fourth quarter of 2007, most of the inventory was
disposed of at minimal liquidation value with the payable also written-off.

Sale of Portable Energy Product Line--See Note 16 Subsequent events
-------------------------------------------------------------------

In March 2008, ZAP signed an agreement with Al-Yousuf LLC for the sale of the
portable energy product line for $1,000,000 in exchange for a 50% ownership in a
new company. Both ZAP and Al-Yousuf will each own 50%. Ebal Al Yousuf ,who is a
director of ZAP, is also the President of Al-Yousuf LLC.

                                       53
<PAGE>

NOTE 13 - LITIGATION

In the normal course of business, we may become involved in various legal
proceedings. Except as stated below, we know of no pending or threatened legal
proceeding to which we are or will be a party which, if successful, might result
in a material adverse change in our business, properties or financial condition.
However, as with most businesses, we are occasionally parties to lawsuits
incidental to our business, none of which are anticipated to have a material
adverse impact on our financial position, results of operations, liquidity or
cash flows. The Company estimates the amount of potential exposure it may have
with respect to litigation claims and assessments.

ZAP v. Daimler Chrysler AG, et al., Superior Court of California, County of Los
Angeles, Case No. BC342211. On October 28, 2005, ZAP filed a complaint against
Daimler Chrysler Corporation and others in the Los Angeles Superior Court in
excess of $500 million. The complaint includes claims for intentional and
negligent interference with prospective economic relations, trade libel,
defamation, breach of contract - agreement to negotiate in good faith, breach of
implied covenant of good faith and fair dealing, and unfair competition. The
complaint alleges that Daimler Chrysler has engaged in a series of
anti-competitive tactics aimed at defaming ZAP and disrupting its third-party
business relationships. As a result of the allegations, the complaint requests
damages in excess of $500 million and such other relief as the court deems just
and proper. Daimler Chrysler has successfully filed a motion to quash that
complaint for lack of personal jurisdiction, and the court's ruling on that
matter is in the process of being appealed to the State of California Supreme
Court.

ZAP v. Norm Alvis, et al., Superior Court of California, County of Sonoma, Case
No. SCV-238419, complaint filed March 27, 2006. Mr. Alvis was engaged by the
Company and Rotoblock Corporation ("Rotoblock") as a consultant to perform
public relations work on behalf of the Company and Rotoblock. As consideration
for Mr. Alvis' consent to the contract with the Company, the Company provided
Mr. Alvis with use of a motor home worth approximately $306,000. The Company
then sued Mr. Alvis, claiming he failed to perform his obligations under the
contract and refused to return the consideration he received therefore (i.e. the
motor home). The Company is seeking either the return of the motor home or
$500,000 in damages. Mr. Alvis initially did not respond to the complaint, which
prompted the Company to take his default on May 9, 2006. The court then entered
a default judgment on May 16, 2006, on which date the Company obtained a writ of
possession allowing it to reclaim possession of the disputed motor home. On June
18, 2006, Mr. Alvis moved the court to set aside the default and default
judgment and to vacate its order authorizing issuance of the writ of possession.
The court agreed to set aside the default judgments, but it left intact the writ
of possession. The court also required Mr. Alvis to pay the Company $1,000 as
compensation for forcing the Company to initially take his default. Mr. Alvis
has paid the Company the required $1,000. Mr. Alvis then filed (1) an answer
denying the Company's allegations, and (2) a cross-claim against the Company,
Steve Schneider in his individual capacity, and Rotoblock, alleging two counts
of breach of contract, one common count of work, labor, and services received,
and one count of fraud. All of Mr. Alvis' claims relate to the two contracts he
executed with the Company and Rotoblock. Mr. Alvis claims he provided services
to the Company and Rotoblock pursuant to these contracts but received no
consideration in exchange therefore. For the fraud claim, the defendant claims
the Company and Schneider executed the contracts with no intent to perform. Mr.
Alvis has prayed for damages of $2,000,000, interest according to proof,
punitive damages, and an order directing the Company to perfect title to the
motor home. Mr. Alvis then moved the court to quash the writ of possession. The
parties attended mediation on March 4, 2008 and reached a tentative settlement
by which the matter would be resolved according to the following terms: (1) a
mutual release of all claims; (2) ZAP would pay $25,000 to Mr. Alvis;. (3) ZAP
would issue to Alvis $25,000 worth of shares of restricted ZAP common stock; (4)
ZAP would issue Alvis warrants for 100,000 shares of restricted ZAP common
stock, at a strike price of $.70 per share; and (5) ZAP would transfer title of
disputed motor home to Alvis. While ZAP has signed the mediation agreement with
these terms, Alvis has not yet done so. No definitive agreement has been
executed, therefore, pending execution of the mediation agreement by Alvis, then
approval of the settlement terms by the Company's Board of Directors, and
preparation of a definitive settlement agreement. The next case management
conference was scheduled for March 20, 2008, but the court continued same until
July 3, 2008 to allow the parties time con negotiate a settlement.

                                       54
<PAGE>

Robert Chauvin; Mary Chauvin; Rajun Cajun, Inc. dba ZAP of Carson City, dba ZAP
of Reno, dba ZAP of Sparks ("Robert Chauvin, et al.") v. Voltage Vehicles; ZAP;
ZAP Power Systems Inc.; ZAPWORLDCOM; Elliot Winfield; Steven Schneider; Phillip
Terrazzi; Max Scheder-Breschin; Renay Cude; [sic] and Does I-XX, Second Judicial
District Court State of Nevada, County of Washoe, Case No. CV06 02767. On
November 17, 2006, Robert Chauvin, et al. filed a complaint alleging breach of
contract, breach of the covenant of good faith and fair dealing, breach of
warranties, fraud/misrepresentation, negligent misrepresentation, quantum merit
or unjust enrichment, civil conspiracy, violation of Security [sic] and Exchange
Act/federal securities law, and deceptive trade practices, pursuant to a License
Agreement (for a distribution license) entered into between Rajun Cajun, Inc.
dba ZAP of Carson City, dba ZAP of Reno, dba ZAP of Sparks ("Rajun Cajun") and
Voltage Vehicles. The complaint seeks general damages in an amount in excess of
$10,000, special damages in an amount in excess of $10,000, punitive damages in
an amount in excess of $10,000, attorneys' fees and cost of suit, for judgment
in an amount equal to treble actual damages, and recession in the amounts of
$397,000 and $120,000. On January 19, 2007, defendants Voltage Vehicles and ZAP
filed a Motion to Dismiss on the grounds that the License Agreement entered into
between Rajun Cajun and Voltage contains a forum selection clause designating
Sonoma County, State of California as the only appropriate forum. The court
granted that Motion on April 13, 2007. In its order on that motion, the court
also found that all other motions pending in the Nevada court in this matter are
now moot. (As of that time, the following motions were still pending: (1)
Chauvin, et al.'s Notices of Intent to Take Default against two of the named
corporate defendants and against the individual defendants, except Renay Cude;
(2) a Motion to Quash Service of Process or Alternatively for Dismissal by each
of the individual defendants and both of the defunct corporate defendants; and
(3) Chauvin, et al.'s Motion for Publication of Summons against the named
individual defendants.)

Voltage Vehicles v. Rajun Cajun, et al., Superior Court of California, County of
Sonoma, Case No. SCV 240179, filed February 9, 2007. (This suit is related to
the Nevada case of Robert Chauvin, et al. v. Voltage Vehicles, et al. discussed
immediately above.) In its complaint, Voltage Vehicles requests Declaratory
Relief against Rajun Cajun, asking the Court to declare that the License
Agreement between those two parties does not grant Rajun Cajun an exclusive
dealership in northern Nevada to distribute Voltage Vehicle products and that
Voltage Vehicles has performed its obligations under the License Agreement. On
May 24, 2007, Rajun Cajun filed a Cross-Complaint in substantially the same form
as the Complaint filed in Nevada, alleging breach of contract, breach of the
covenant of the good faith, etc. The Cross-Complaint seeks general damages in an
amount in excess of $25,000, special damages in an amount in excess of $25,000,
punitive damages in an amount in excess of $25,000, attorneys' fees and cost of
suit, for judgment in the amount equal to treble actual damages, and rescission
in the amounts of $397,900 and $120,000, plus interest. Cross-Defendants intend
to vigorously defend against the claims set forth in the Cross-Complaint and so,
on August 22, 2007, Cross-Defendants filed both a special demurrer for abatement
to prohibit Cross-Complainants from maintaining a cross-complaint and a demurrer
to the Cross-Complaint itself. On February 11, 2008 ZAP and Voltage Vehicles
filed a demurrer to Cross-complainants' third through fifteenth causes of
action. A hearing on that demurer is currently set for June 11, 2008. The next
case management conference is scheduled for April 2, 2008.

ZAP v. International Monetary Group,(Patrick J Harrington President and CEO)
Inc., a Delaware corporation; Michael C. Sher dba the Law Offices of Michael C.
Sher, Case No. SCV 240277, complaint filed March 1, 2007 in Sonoma County
Superior Court. ZAP sued International Monetary Group ("IMG") whose President
and CEO is Patrick D. Harrington and Michael Sher for declaratory relief,
rescission, and breach of contract. ZAP had entered into an agreement with IMG,
a merchant banking company, to procure financing, and ZAP alleges that IMG,
contrary to the parties' agreement, is seeking to enforce a $500,000 promissory
note. The parties settled the litigation in December, 2007, providing each other
with general releases of all claims. In connection with the settlement of this
matter and the matter International Monetary Group, Inc., a Delaware
corporation; and Michael C. Scher dba the Law Offices of Michael C. Scher v. ZAP
Corporation, a California corporation; and Steven Schneider, an individual,
Scher returned stock certificates representing 1,431,294 shares of ZAP's common
stock to Company for cancellation and ZAP issued 387,500 shares of ZAP common
stock to IMG. Although the parties agreed to the settlement, the stock was not
transferred until January 2008, thus completing the transaction.

                                       55
<PAGE>

NOTE 14 - SEGMENT REPORTING

In accordance with the provisions of SFAS No. 131, the Company has identified
three reportable segments consisting of sales and marketing of electric consumer
products, operation of a retail car outlet, sales to and sales of advanced
technology vehicles for the Xebra(TM) electric vehicles. and Smart Cars
Americanized by ZAP. These segments are strategic business units that offer
different services. They are managed separately because each business requires
different resources and strategies. The Company's chief operating decision
making group, which is comprised of the Chief Executive Officer and the senior
executives of each of ZAP regularly evaluate the financial information about
these segments in deciding how to allocate resources and in assessing
performance. The performance of each segment is measured based on its profit or
loss from operations before income taxes. Segment results are summarized as
follows (in thousands):

<TABLE><CAPTION>
                                       Electric                                 Advanced
                                       Consumer      Portable       Car        Technology
                                       products       Energy       outlet       Vehicles       Total
                                       --------      --------     --------      --------      --------
<S>                                    <C>           <C>          <C>           <C>           <C>
     Year ended December 31, 2007:
       Net sales                       $    742      $    875     $  1,304      $  2,791      $  5,712
       Gross profit(loss)                   (88)          287          330           246           775
       Depreciation, amortization
         and impairment                     202          --             27            94           323
       Net loss                         (27,628)          194          (98)         (474)      (28,006)
       Total assets                      10,102            70          488         1,278        11,938

     Year ended December 31, 2006:
       Net sales                       $    830      $     13     $  1,618      $  8,369        10,830
       Gross profit                        (449)            4          440           530           525
       Depreciation, amortization
         and impairment                   3,844          --             25            17         3,886
       Net loss                         (11,755)         --            (17)         (143)      (11,915)
       Total assets                       8,238            66          430         2,082        10,816
</TABLE>

NOTE 15 - SUPPLEMENTAL CASH FLOW INFORMATION

A summary of non-cash investing and financing information is as follows (in
thousands):

                                               Year ended December 31
                                               ----------------------
                                                 2007          2006
                                               --------      --------
      Cash paid during the year for:
            Income taxes                       $      4      $      4
           Interest                                                72

Common and preferred stock and warrants and debt issuances for:

      Settlement of liability to Smart Auto          --         1,355
      Inventory                                     237            --
      Settlement of warrant liability                --           568
      Prepaid professional fees                   3,415           861
      Property and equipment                                        3
      Debt converted to common stock              2,166

NOTE 16 - SUBSEQUENT EVENT

In March 2008, ZAP signed an agreement with Al-Yousuf LLC for the sale of the
portable energy product line for $1,000,000 in exchange for a 50% ownership in a
new company. Ebal Al Yousuf ,who is a director of ZAP, is also the President of
Al-Yousulf LLC. At December 31, 2007 the net assets included in our consolidated
financial statements of approximately $70,300 or less than .1% of total assets.
The net sales of the portable energy line were approximately $875,000 or 15% of
net sales for the year ended December 31, 2007.

                                       56
<PAGE>

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

          None

ITEM 8A.  CONTROLS AND PROCEDURES.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
----------------------------------------------------------------------------

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended) designed to
ensure that information required to be disclosed in reports filed under the
Securities Exchange Act of 1934 ("Exchange Act") is recorded, processed,
summarized and reported within the specified time periods. Our Chief Executive
Officer and its Chief Financial Officer (collectively, the "Certifying
Officers") are responsible for maintaining our disclosure controls and
procedures. The controls and procedures established by us are designed to
provide reasonable assurance that information required to be disclosed by the
issuer in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the Commission's rules and forms.

As of the end of the period covered by this report, the Certifying Officers
evaluated the effectiveness of our disclosure controls and procedures. Based on
the evaluation, the Certifying Officers concluded that our disclosure controls
and procedures were effective to provide reasonable assurance that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the applicable rules and forms, and that it is accumulated
and communicated to our management, including the Certifying Officers, as
appropriate to allow timely decisions regarding required disclosure.

Internal Control over Financial Reporting
-----------------------------------------

(a) Management's Annual Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal
control over financial reporting for the Company, as such term is defined under
Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934, as
amended. In order to evaluate the effectiveness of internal control over
financial reporting, as required by Section 404 of the Sarbanes-Oxley Act,
management has conducted an assessment, including testing, using the criteria in
Internal Control--Integrated Framework, issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Because of its inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

This annual report on Form 10-KSB does not include an attestation report of our
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by our registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the company to provide only management's report
in this annual report.

Our management assessed the effectiveness of our internal control over financial
reporting as of December 31, 2007. In making this assessment, our management
used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on
this assessment, management believes that as of December 31, 2007, our internal
control over financial reporting is effective based on those criteria. The prior
year weaknesses in our internal controls were rectified in 2007.

There were no changes in our internal control over financial reporting that
occurred during the year ended December 31, 2007 that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.

                                       57
<PAGE>

ITEM 8B.  OTHER INFORMATION.

The Company was not required to disclose information on Form 8-K that it did not
report on a Form 8-K during the fourth quarter of the year covered by this Form
10-KSB.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.

The Company's directors and executive officers and their ages as of March 28,
2008 are as follows:

      Name                        Age      Position
      -----------------------     ---      ------------------------------------

      Steven M. Schneider         46       Chief Executive Officer and Director
      Gary Starr                  52       Chairman of the Board of Directors
      William Hartman             60       Chief Financial Officer and Secretary
      Amos Kazzaz                 52       Chief Operating Officer
      Albert Lam                  44       Director
      Peter H. Scholl             61       Director
      Eqbal Al Yousuf             49       Director

Steven M. Schneider. Mr. Schneider has been director and Chief Executive Officer
of ZAP since October 26, 2002. Schneider has a 30-year career in the automotive
industry and a long-time interest in fun, fuel-efficient cars. He has served as
ZAP's CEO since 2002, when the company acquired Auto Distributors, Inc. and
Voltage Vehicles, businesses he founded which specialized in the distribution of
electric and alternative fuel vehicles including automobiles, motorcycles and
bicycles. Schneider also founded the RAP Group, an automotive liquidator and
reseller, which ZAP also acquired. He serves on the board of directors of Apollo
Energy Systems, a developer of fuel cells and advanced batteries. He also serves
as a director of Rotoblock Corporation, a public company focused on the
continued development of the oscillating piston engine. He is an active member
with various industry groups, including the Electric Drive Transportation
Association in Washington, DC. , and is a member of the Bay Area Alliance of
CEOs. He lectures frequently on industry topics at universities and other
organizations.

Gary Starr. Mr. Starr co-founded ZAP in 1994, has been a director since the
Company's inception and served as Chief Executive Officer from 2000 to 2002. He
became chairman of the Board of Directors in October 2002. Mr. Starr founded US
Electricar's electric vehicle operation in 1983. Mr. Starr has several
publications: "Electric Cars: Your Guide to Clean Motoring, "The Shocking Truth
of Electric Cars," and "The True Cost of Oil." In addition, he has appeared on
more than 300 radio and television shows including Larry King Live, The Today
Show, Inside Edition, CNN Headline News, Prime Time Live, the CBS Evening News
and the McNeil Lehrer News Hour as an authority in the field of electric
vehicles. Mr. Starr has a Bachelor of Science Degree from the University of
California, Davis in Environmental Consulting and Advocacy. He is a frequent
lecturer on electric cars and has developed several industry inventions.

William Hartman. Mr. Hartman was appointed Chief Financial Officer in March
2001. He was engaged with the Company as a financial consultant starting in
January 2001. Prior to his engagement at ZAP, Mr. Hartman provided financial and
accounting consulting services to various Internet start up companies in the San
Francisco Bay Area from 1999 to 2001. Mr. Hartman is a Certified Public
Accountant in the State of California with a Masters in Accounting Degree from
the State University of New York. He also had previous public accounting
experience as an audit manager with Price Waterhouse Coopers in San Francisco.
Mr. Hartman was appointed Corporate Secretary effective April 10, 2008 due to
the resignation of Ms. Cude.

Mr. Amos Kazzaz. Mr. Kazzaz was appointed Chief Operating Officer on March 26,
2007. Prior to joining ZAP, Mr. Kazzaz served as Vice President of Cost
Management at United Airlines, Inc. where he oversaw United Airline's process
improvement, and cost management. From 2003 to 2006, Mr. Kazzaz served as United
Airline's Vice President of Financial Planning and Analysis. From 2002 to 2004,
Mr. Kazzaz served as United Airline's Vice President of the Business
Transformation Office, the company's first enterprise project management office,
during which time he was


                                       58
<PAGE>

responsible for identifying areas of revenue and cost improvements;
concurrently, Mr. Kazzaz served as the Chief Operating Officer at Avolar, a
subsidiary of UAL Inc. He currently is on the Board of Directors of Alliant
Credit Union. Mr. Kazzaz holds a bachelors degree in International Affairs from
the University of Colorado and a Masters in Business Administration from the
University of Denver.

Mr. Lam serves as Executive Director of Lotus Group International Ltd., where he
also serves as Managing Director and Chief Executive Officer of the Lotus
Engineering Group. From November 2001 to June 2003, Mr. Lam served as Managing
Director for Apple Computer South Asia Ltd., where he oversaw sales, marketing,
and other functions of Apple's business in the South Asian region. Mr. Lam is a
graduate of Coventry University in the United Kingdom and holds a PhD in Complex
Knowledge Systems, an MSC in Robotics and Artificial Intelligence Systems, and a
post-graduate diploma in Robotics and Artificial Intelligence Systems.

Mr. Al Yousuf was the President of Dubai's Al-Yousuf Group and Al Yousuf LLC. He
has held this position since 2005. Prior to this Mr. Al Yousuf has held the
senior management positions of Vice Chairman and CEO of Dubai's Al-Yousuf Group
and Al Yousuf LLC from 2001 to 2005.

Peter H. Scholl. Mr. Scholl is currently an independent engineering consultant.
From 2003 to 2005, Mr. Scholl served as President of Rotoblock Inc. in Canada
and Rotoblock Corporation, a Nevada corporation, in the development of
Oscillating Piston Engine technology. He served as President of Unimont Inc., a
real estate development firm, in Penticton, Canada from 2001 to 2003. From 1996
to 2000, Mr. Scholl worked on the development of water purification systems in
Arizona. Mr. Scholl has a Bachelor's of Science degree in Mechanical Engineering
from the Institute of Technology in Biel, Switzerland.

Family Relationships

There are no family relationships among any of our officers or directors.

Board of Directors

Corporate Governance Principles and Board Matters

ZAP is committed to having sound corporate governance principles and practices.
ZAP's primary corporate governance documents, including our Code of Ethics and
Committee Charters, are available to the public on our website at
http://www.zapworld.com. The following is a discussion of our current governance
principles and practices.

Board Meetings

During 2007, our Board met or conferred by telephone at 15 times. During 2007,
all directors attended at least 75% of the aggregate of (i) the total number of
meetings of the Board during 2007 and (ii) the total number of meetings held by
all committees of the Board on which such director served in 2007. The Company
does not have a policy with regard to attendance of directors at annual
meetings, but encourages.

Committees of the Board

Audit Committee

The Board's Audit Committee is comprised of Peter Scholl, and Gary Starr. During
2007, the Audit Committee met 4 times. All current members of the Audit
Committee are financially literate and are able to read and understand

                                       59
<PAGE>

fundamental financial statements, including a balance sheet, income statement
and cash flow statement. The Board has determined that Mr. Scholl qualifies as
an audit committee financial expert as defined within Item 401 of Regulation
S-B.

The Audit Committee assists the Board of Directors in its oversight of the
quality and integrity of the accounting, auditing, and reporting practices of
the Company. The Audit Committee's role includes overseeing the work of the
Company's internal accounting and financial reporting and internal auditing
processes and discussing with management the Company's processes to manage
business and financial risk, and for compliance with significant applicable
legal, ethical, and regulatory requirements. The Audit Committee is responsible
for the appointment, compensation, retention, and oversight of the independent
auditor engaged to prepare or issue audit reports on the financial statements
and internal control over financial reporting of the Company. The Audit
Committee relies on the expertise and knowledge of management and the
independent auditor in carrying out its oversight responsibilities. The
Committee's specific responsibilities are delineated in the Audit Committee
Charter. The Audit Committee Charter is available on the ZAP website at
http://www.zapworld.com.

Compensation Committee

The Board's Compensation Committee is comprised of Gary Starr and Peter Scholl.
During 2007, the Compensation Committee meets in conjunction with the Board of
Directors meetings. A copy of the Compensation Committee Charter is available on
the ZAP website at http://www.zapworld.com. The Compensation Committee, among
other things, advises the Board on all matters pertaining to compensation
programs and policies, approves the compensation payable to each of the officers
of the Company, reviews proposed compensation of executives as provided in the
Company's executive compensation plan and administers the Company's stock option
plans.

Corporate Governance and Nominating Committee

The Board's Corporate Governance and Nominating Committee (the "Governance
Committee") is comprised of Peter Scholl and Gary Starr, During 2007, the
Governance Committee meets in conjunction with the Board of Directors meetings.
The Governance Committee has adopted a charter, which has been ratified and
approved by the Board. A copy of the committee's charter is available on the ZAP
website at http://www.zapworld.com.

The Governance Committee, among other things, identifies, evaluates and
recommends individuals qualified to be directors of the Company. Members of the
Board of Directors should have the highest professional and personal ethics and
values. They should have broad experience at the policy-making level in
business, government, education, technology or public interest. They should be
able to provide insights and practical wisdom based on their experience and
expertise. They should be committed to enhancing shareholder value and should
have sufficient time to effectively carry out their duties. Their service on
other Boards of public companies should be limited to a reasonable number.

The Governance Committee annually reviews the appropriate skills and
characteristics required of Board members in the context of the current
composition of the Board, the operating requirements of the Company and the
long-term interests of the shareholders. In conducting this assessment, the
committee considers diversity, age, skills, and such other factors as it deems
appropriate given the current needs of the Board and the Company, to maintain a
balance of knowledge, experience and capability.

Code of Ethics

The Board has adopted a Code of Ethics to provide guidance on maintaining the
Company's commitment to being honest and ethical in its business endeavors. The
Code of Ethics covers a wide range of business practices, procedures and basic
principles regarding corporate and personal conduct and applies to all
directors, executives, officers and employees. A copy of the Code of Ethics is
available on the ZAP website http://www.zapworld.com or may be obtained by
written request submitted to the Corporate Secretary at ZAP, 501 Fourth Street,
Santa Rosa, CA 95401. The Company intends to satisfy any disclosure requirements
regarding amendments to, or waivers from, any provision of the Code of Ethics by
disclosing on the Company's website, by press release and/or on a current report
on Form 8-K.

                                       60
<PAGE>

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers, directors and persons beneficially owning more than 10% of the
outstanding common stock of the Company to file reports of beneficial ownership
and changes in beneficial ownership with the Securities and Exchange Commission
("SEC"). Officers, directors, and greater than 10% beneficial owners of common
stock are required by SEC regulation to furnish the Company with copies of all
Section 16(a) forms they file. The Company believes that during the fiscal year
ended December 31, 2007, all officers and directors timely filed the initial
statement of beneficial ownership of securities on Form 3. The Company also
believes that during the fiscal year ended December 31, 2007, all officers and
directors timely reported certain transactions on Form 4s.

ITEM 10.  EXECUTIVE COMPENSATION.

Executive Compensation

The following executive compensation disclosure reflects all compensation
awarded to, earned by or paid to the executive officers below for the fiscal
year ended December 31, 2007. The following table summarizes all compensation
for fiscal year 2007 received by our Chief Executive Officer, and the Company's
other most highly compensated executive officers who earned more than $100,000
in fiscal year 2007.

<TABLE><CAPTION>
                                                    SUMMARY COMPENSATION TABLE

                                                                                Non-Equity
                                                                                Incentive   Nonqualified   Warrants and
                                                           Stock     Option        Plan       Deferred      All Other
                                                           Awards    Awards   Compensation  Compensation   Compensation
Name and principal position    Year  Salary($)  Bonus($)   ($)(1)    ($)(1)        ($)       Earnings($)      ($)(2)        Total($)
---------------------------    ----  ---------  --------   ------    ------        ---       -----------      ------        --------
<S>                            <C>   <C>        <C>        <C>      <C>            <C>       <C>           <C>             <C>
Steven Schneider, CEO          2007   125,000     --       23,500   810,000         --           --        6,895,000(2)    7,853,500
Gary Starr, Chairman           2007   125,000     --       23,500   810,000         --           --        2,895,000(2)    3,943,500
William Hartman,CFO            2007   120,000     --       23,500   590,500                                  475,000(2)    1,209,800
Amos Kazzaz                    2007   120,000     --      138,500   857,000                                     --         1,115,500
Renay Cude, Secretary (3)      2007    78,000     --      136,400   810,000         --           --          875,000(2)    1,900,200
</TABLE>

   (1)  Stock awards are based on the stock price on the date of issue.
        Options/warrant awards were calculated using the following assumptions:
        dividend of 0, rate of 5.12% for warrants and 4.91% for options,
        expected life of 5 months for warrants and 6.75 years for options,
        strike price of $1.00 for warrants and $0.91 for options, stock price of
        $0.91 and volatility of 149.75%. All option and warrant issuances were
        fully vested at time of issue.

   (2)  In January of 2007, the Board of Directors extended by five years
        through July 1, 2012, Series B through K warrants. These warrants were
        initially issued within the Plan of reorganization in July of 2002, to
        officers, directors, ZAP employees and shareholders. These modified
        warrants will also provide compensation incentives to the key employees
        and shareholders of ZAP that possess specialized knowledge of the
        electrical and alternate energy vehicle industry. Their retention is
        essential to our business.

        The exercise prices of the warrants were also revised from prices
        ranging from $1.00 to $8.00 to prices ranging from $1.00 to $1.08. These
        modified warrants were valued by using the Black Scholes pricing model.

   (3)  Ms. Cude resigned as Secretary and Director effective April 10, 2008.


Employment Agreements

We currently have employment agreements with five of our Named Executive
Officers as described below.

Steve Schneider, Chief Executive Officer

We entered into an employment agreement with Steve Schneider on October 1, 2003.
The agreement provides that Mr. Schneider will serve as our Chief Executive
Officer through October 1, 2008 and receive a salary, benefits and options equal
to the highest paid employee of ZAP, but in no event less than $75,000 per year.
Mr. Schneider's current salary is set at $125,000. In addition, the agreement
provides that should ZAP become profitable, Mr. Schneider's salary will
automatically be increased by 10% for every $100,000 in profits calculated on a
quarterly basis. Mr. Schneider annually receives a grant of stock options or

                                       61
<PAGE>

warrants equal to 1% of the outstanding common stock of ZAP at an exercise price
equal to 110% of the market price on the date of grant. Mr. Schneider also
receives all other benefits as are afforded to our employees and a Company car,
or a car allowance of $5,000 per year in lieu of a Company car. In the event ZAP
terminates his employment without cause, Mr. Schneider is entitled to his full
salary for the remainder of the term of the agreement. Should ZAP elect to
terminate Mr. Schneider's employment in the case of a merger or reclassify Mr.
Schneider without cause prior to the expiration of the employment agreement, the
Company must retain Mr. Schneider as an employee or consultant for a period of
five years for an aggregate salary of $500,000, payable bi-monthly, or make a
lump sum payment of $300,000. The agreement automatically renews for successive
five year periods unless terminated by either party upon proper notice. On March
30, 2007, The Board of Directors of ZAP did approve the extension of the
employment agreement with Mr. Schneider through October 1, 2013.

Gary Starr, Chairman of the Board

We entered into an employment agreement with Gary Starr on October 1, 2003. The
agreement provides that Mr. Starr will serve as Chairman of the Board of
Directors of ZAP through October 1, 2008 and receive a salary, benefits and
options equal to the highest paid employee of ZAP, but in no event less than
$75,000 per year. Mr. Starr's current salary is set at $125,000. In addition,
the agreement provides that should ZAP become profitable, Mr. Starr's salary
will automatically be increased by 10% for every $100,000 in profits, calculated
on a quarterly basis. Mr. Starr annually receives a grant of stock options or
warrants equal to 1% of the outstanding common stock of ZAP at an exercise price
equal to 110% of the market price on the date of grant. Mr. Starr also receives
all other benefits as are afforded to our employees and a Company car, or a car
allowance of $5,000 per year in lieu of a Company car. In the event ZAP
terminates his employment without cause, Mr. Starr is entitled to his full
salary for the remainder of the term of the agreement. Should ZAP elect to
terminate Mr. Starr's employment in the case of a merger or reclassify Mr. Starr
without cause prior to the expiration of the employment agreement, the Company
must retain Mr. Starr as an employee or consultant for a period of five years
for an aggregate salary of $500,000, payable bi-monthly, or make a lump sum
payment of $300,000. The agreement automatically renews for successive five year
periods unless terminated by either party upon proper notice. On March 30, 2007,
The Board of Directors of ZAP did approve the extension of the employment
agreement with Mr. Starr through October 1, 2013.

Renay Cude, Former Secretary

We entered into an employment agreement with Renay Cude on October 1, 2003. The
agreement provides that Ms. Cude will serve as a Corporate Secretary of ZAP
through October 1, 2008 and receive a salary, benefits and options equal to the
highest paid non corporate officer-employee of ZAP, but in no event less than
$36,000 per year. Ms. Cude's current salary is set at $78,000. In addition, the
agreement provides that should ZAP become profitable, Ms. Cude's salary will
automatically be increased by 10% for every $100,000 in profits, calculated on a
quarterly basis. Ms. Cude annually receives a grant of stock options or warrants
equal to 1% of the outstanding common stock of ZAP at an exercise price equal to
110% of the market price on the date of grant. Ms. Cude also receives all other
benefits as are afforded to our employees and a Company car, or a car allowance
of $5,000 per year in lieu of a Company car. In the event ZAP terminates her
employment without cause, Ms. Cude is entitled to her full salary for the
remainder of the term of the agreement. Should ZAP elect to terminate Ms. Cude's
employment in the case of a merger or reclassify Ms. Cude without cause prior to
the expiration of the employment agreement, the Company must retain Ms. Cude as
an employee or consultant for a period of five years for an aggregate salary of
$250,000, payable bi-monthly, or make a lump sum payment of $150,000. The
agreement automatically renews for successive five year periods unless
terminated by either party upon proper notice. On March 30, 2007,The Board of
Directors of ZAP did approve the extension of the employment agreement with Ms.
Cude through October 1, 2013. Ms. Cude resigned as a Director and Officer of ZAP
effective April 10, 2008. Mr. Hartman has been appointed to serve as the
Corporate Secretary of ZAP and will be assisted by Ms. Cude in an advisory role.

William Hartman, Chief Financial Officer and Secretary

We entered into an employment agreement with Bill Hartman on August 1, 2007. The
agreement provides that Mr. Hartman will serve as Chief Financial Officer of ZAP
through August 1, 2008, with a yearly renewal clause and receive a salary at
$120,000 Mr. Hartman also receives all other benefits as are afforded to our
employees and a Company car, or a car allowance of $5,000 per year in lieu of a
Company car. In the event ZAP terminates his employment without cause,

                                       62
<PAGE>

Mr.Hartman is entitled to his full salary for the remainder of the term of the
agreement. Mr. Hartman became the Corporate Secretary on April 10, 2008 due to
the resignation of Ms. Cude.

Amos Kazzaz, Chief Operating Officer

We entered into an employment agreement with Amos Kazzaz on August 28, 2007. The
agreement provides that Mr. Kazzaz will serve as Chief Operating Officer of ZAP
through August 28, 2010, and receive a salary at $120,000, with annual reviews.
Mr. Kazzaz also receives all other benefits as are afforded to our employees and
a Company car, or a car allowance of $5,000 per year in lieu of a Company car.
In the event ZAP terminates his employment without cause, Mr. Kazzaz is entitled
to his full salary for the remainder of the term of the agreement. The following
table sets forth certain information concerning stock option awards granted to
our named executive officers.

<TABLE><CAPTION>
                                          OPTION AWARDS                                               STOCK AWARDS
                  ---------------------------------------------------------------  -------------------------------------------------
                                                                                                           Equity
                                                                                                           incentive
                                                                                                           plan        Equity
                                                                                                           awards:     incentive
                                               Equity                                                      number of   plan awards:
                                               Incentive                                                   unearned    Market or
                                               Plan Awards:                                    Market      shares,     payout value
                  Number of     Number of      Number of                           Number of   value of    units or    of unearned
                  securities    securities     Securities                          shares or   shares or   other       shares, units
                  underlying    underlying     underlying                          units of    units of    rights      or other
                  unexercised   unexercised    unexercised  Option     Option      stock that  stock that  that have   rights that
                  options (#)   options (#)    unearned     exercise   expiration  have not    have not    not vested  have not
Name              Exercisable   Unexercisable  options (#)  price ($)  date        vested (#)  vested ($)  (#)         vested ($)
<S>               <C>           <C>            <C>          <C>        <C>         <C>         <C>         <C>         <C>
Steve Schneider(3)    220,000   -              -             0.23        7/5/12
Steve Schneider(3)    550,000                  -             1.15       6/23/14
Steve Schneider(2)    566,117                  -             1.20      11/16/14
Steve Schneider(2)    348,588                  -             0.85        6/7/15
Steve Schneider(2)    572,686                                0.94       11/9/17
Steve Schneider(4)  1,063,480                               $1.08        7/1/12
Steve Schneider(4)  2,690,000                               $1.08        7/1/12
Steve Schneider(4)  3,190,000                               $1.08        7/1/12
Steve Schneider(4)  3,025,000                               $0.91        7/1/12
Steve Schneider(4)  1,690,786                               $0.91        7/1/12
Steve Schneider(1)    572,686                               $1.00        7/1/12
Steve Schneider(3)    390,966                                 .83       8/11/16

Gary Starr(4)       1,155,930                               $1.08        7/1/12
Gary Starr(4)       1,144,930                               $1.08        7/1/12
Gary Starr(4)         734,630                               $1.08        7/1/12
Gary Starr(2)         128,334   -              -             1.09      12/19/11
Gary Starr(2)         130,000   -              -             0.23        7/5/12
Gary Starr(2)         550,000                  -             1.15       6/23/14
Gary Starr(2)         566,117                  -             1.20      11/16/14
Gary Starr(2)         348,588                  -             0.85        6/7/15
Gary Starr(2)         390,966   -              -             0.83       8/11/16
Gary Starr(2)         572,686   -              -             0.94       11/9/17
Gary Starr(1)         572,686   -              -             1.00        7/2/12
Gary Starr(4)       1,470,671                                $.91        7/1/12
Gary Starr(4)         935,000                                $.91        7/1/12

Renay Cude(4)       1,225,786   -              -             1.00        7/1/12
Renay Cude(3)         135,370   -              -             0.45       12/2/13
Renay Cude(3)          55,000                  -             1.15       6/23/14
Renay Cude(2)         566,117                  -             1.20      11/16/14
Renay Cude(2)         348,588                  -             0.85        6/7/15
Renay Cude(2)         390,966   -              -             0.83       8/11/16
Renay Cude(2)         572,686   -              -             0.94       11/9/17
Renay Cude(1)(6)      572,686   -              -             0.91        7/2/12
</TABLE>
                                       63
<PAGE>

<TABLE><CAPTION>
                                          OPTION AWARDS                                               STOCK AWARDS
                  ---------------------------------------------------------------  -------------------------------------------------
                                                                                                           Equity
                                                                                                           incentive
                                                                                                           plan        Equity
                                                                                                           awards:     incentive
                                               Equity                                                      number of   plan awards:
                                               Incentive                                                   unearned    Market or
                                               Plan Awards:                                    Market      shares,     payout value
                  Number of     Number of      Number of                           Number of   value of    units or    of unearned
                  securities    securities     Securities                          shares or   shares or   other       shares, units
                  underlying    underlying     underlying                          units of    units of    rights      or other
                  unexercised   unexercised    unexercised  Option     Option      stock that  stock that  that have   rights that
                  options (#)   options (#)    unearned     exercise   expiration  have not    have not    not vested  have not
Name              Exercisable   Unexercisable  options (#)  price ($)  date        vested (#)  vested ($)  (#)         vested ($)
<S>               <C>           <C>            <C>          <C>        <C>         <C>         <C>         <C>         <C>
William Hartman(4)    807,369   -              -             .91         7/1/12
William Hartman(4)     22,000                               1.08       7/1/2012
William Hartman(3)     55,000                  -            1.20       11/16/14
William Hartman(3)     27,500   -              -            1.09       12/19/11
William Hartman(3)     82,500                  -            1.15        6/23/14
William Hartman(3)    110,000                  -            0.94        9/18/16
William Hartman(3)    119,869   -              -            1.15       03/30/17
William Hartman(5)    500,000   -              -            1.07       07/30/17

Amos Kazzaz(3)        559,606                               1.15       06/23/14
Amos Kazzaz(5)        500,000                               1.08       08/28/17
</TABLE>

Note: All options and warrants issued before February 28, 2007 were adjusted for
the 10% stock dividend authorized by the Board of Directors effective on this
date.

(1)  The award represents warrants which are exercisable at the time of issuance
     per employment agreement.
(2)  The award vest at the date of grant. The option has a ten year life. Issued
     per the employment agreements.
(3)  The award vests equally over 36 months from date of grant. The option has a
     ten year life.
(4)  In January of 2007, the Board of Directors extended by five years through
     July 1, 2012, Series B through K warrants. These warrants were initially
     issued within the Plan of reorganization in July of 2002, to officers,
     directors, ZAP employees and shareholders. These modified warrants will
     also provide compensation incentives to the key employees and shareholders
     of ZAP that possess specialized knowledge of the electrical and alternate
     energy vehicle industry. Their retention is essential to our business.
     The exercise prices of the warrants were also revised from prices ranging
     from $1.00 to $8.00 to prices ranging from $1.00 to $1.08. These modified
     warrants were valued by using the Black Scholes pricing model.
(5)  The award vests equally over 36 months from date of grant. The option has a
     ten year life. Issued per the employment agreement.
(6)  Ms. Cude resigned as a Director and Officer on April 10, 2008.

DIRECTOR COMPENSATION

The following director compensation disclosure reflects all compensation awarded
to, earned by or paid to the outside directors below for the fiscal year ended
December 31, 2007.

<TABLE><CAPTION>
                                                                                   Change in Pension
                                                                                   Value and
                           Fees                                                    Nonqualified
                           Earned or    Stock                  Non-Equity          Deferred
                           Paid in      Awards     Option      Incentive Plan      Compensation        All Other
Name                       Cash($)       ($)       Awards($)   Compensation($)     Earnings ($)        Compensation($)    Total($)
----                       -------       ---       ---------   ---------------     ------------        ---------------    --------
<S>                        <C>           <C>       <C>         <C>                 <C>                 <C>                <C>
Steven M. Schneider(1)
Gary Starr(1)
Albert Lam                   --       194,000(2)      --            --                 --                785,000(2)       979,000
Peter H. Scholl             6,000      23,500(4)                                                         719,000(3)       448,500
Eqbal Al-Yousulf             --          --           --                                                                     --
</TABLE>

                                       64
<PAGE>

(1) This Director's compensation as a director is reflected in the table titled
"Summary Compensation Table " above

(2) On September 1, 2007, the Company and Mr. Albert Lam, who became a director
of the Company, in October 2007 entered into an Independent Consulting Agreement
("Consulting Agreement"). Pursuant to the Consulting Agreement, Mr. Lam was to
consult and advise the Company in the areas of Chinese manufacturing,
facilities, tooling, financing, and contract negotiations on an independent
consultant basis. Mr. Lam's compensation under the Consulting Agreement was:
200,000 shares of the Company's common stock valued at $194,000, issued under
the Company's 2007 Consultant Stock Plan (the "Plan"); a warrant to purchase
200,000 shares of the Company's common stock valued at $131,000, expiring five
years after grant, with an exercise price of $1.00 per share, issued under the
Plan; and a warrant to purchase 1,000,000 shares of the Company's common stock
valued at $654,000, expiring five years after grant, with an exercise price of
$1.00 per share and a net exercise provision.

(3) In January of 2007, the Board of Directors extended by five years through
July 1, 2012, Series B through K warrants. These warrants were initially issued
within the Plan of reorganization in July of 2002, to officers, directors, ZAP
employees and shareholders. These modified warrants will also provide
compensation incentives to the key employees and shareholders of ZAP that
possess specialized knowledge of the electrical and alternate energy vehicle
industry. Their retention is essential to our business.

The exercise prices of the warrants were also revised from prices ranging from
$1.00 to $8.00 to prices ranging from $1.00 to $1.08. These modified warrants
were valued by using the Black Scholes pricing model.

(4) Stock awards are based on the stock price on the date of issue

Compensation of Directors

The outside directors receive $500 and a grant of $500 of common stock for
attendance at each Board meeting and each committee meeting. Directors are also
reimbursed for out-of-pocket travel and other expenses incurred in attending
Board and/or committee meetings. Peter Scholl also received 25,000 shares of
common stock and $419,000 in warrants December 2007 as an additional
compensation incentive .

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.

The following table sets forth certain information, as of April 8, 2008, with
respect to the holdings of (1) each person who is the beneficial owner of more
than five percent of our common stock, (2) each of our directors, (3) the CEO
and each Named Executive Officer, and (4) all of our directors and executive
officers as a group.

Beneficial ownership of the common stock is determined in accordance with the
rules of the Securities and Exchange Commission and includes any shares of
common stock over which a person exercises sole or shared voting or investment
powers, or of which a person has a right to acquire ownership at any time within
60 days of April 8, 2008. Except as otherwise indicated, and subject to
applicable community property laws, the persons named in this table have sole
voting and investment power with respect to all shares of common stock held by
them. Applicable percentage ownership in the following table is based on
59,233,233 shares of common stock outstanding as of April 8, 2008, plus, for
each individual, any securities that individual has the right to acquire within
60 days of April 8, 2008.

Unless otherwise indicated below, the address of each of the principal
shareholders is c/o ZAP, 501 Fourth Street, Santa Rosa, California 95401.

                                       65
<PAGE>

                                                         Shares
                                                      Beneficially    Percentage
      Name and Address                                   Owned         of Class
      ----------------                                   -----         --------

      Beneficial Owners of More than 5%:

      Marlin Financial Group                           2,799,136         4.73%
      9812 Falls Road
      Potomac,Maryland 20854

      Fusion Capital Fund II, LLC (2)                  2,750,000         4.64%
      222 Merchandise Mart Plaza, Suite 9-112
      Chicago, IL 60654

      Jeffrey G. Banks (3),the Banks Group             4,136,297         6.98%

      Renay Cude (7)                                   4,064,901         6.86%

      Current Directors, Nominees and Named
      Executive Officers:

      Steven Schneider (4)                            17,629,809        29.76%

      Gary Starr (5)                                   9,720,149        16.41%

      William Hartman (6)                              1,836,238         3.10%

      Amos Kazzaz (8)                                  1,174,606         1.98%

      Albert Lam (9)                                   1,425,000         2.41%

      Peter Scholl (10)                                  690,218         1.17%

      Eqbal Al Yousuf (11)                             7,162,454        12.09%

      All Directors and Executive Officers
        as a group (7 persons)                        39,638,474        66.92%

---------------

(1)  Includes 2,587,262 warrants to purchase common stock. The managing partner
     is Mark Levin. The address for 9812 Falls Road,Potomac, Maryland 20854
(2)  Represents 2,750,000 warrants to purchase common stock. Pursuant to the
     terms of the warrant, Fusion Capital is not entitled to exercise the
     warrants to the extent such exercise would cause the aggregate number of
     shares of common stock beneficially owned by Fusion Capital to exceed 9.9%
     of the outstanding shares of the common stock following such exercise.
     Steve Martin is the managing partner. The address for Fusion Capital is 222
     Merchandise Mart Plaza, Suite 9-112, Chicago, IL 60654.
(3)  Includes 2,505,000 warrants to purchase common stock.
(4)  Includes 12,231,952 shares of common stock issuable upon the exercise of
     various warrants and 2,648,357 shares of stock issuable upon the exercise
     of stock options.
(5)  Includes 6,013,846shares of common stock issuable upon the exercise of
     various warrants and 2,686,691 shares of stock issuable upon the exercise
     of stock options.
(6)  Includes 829,369 shares of common stock issuable upon the exercise of
     various warrants and 894,869 shares of stock issuable upon the exercise of
     stock options.
(7)  Includes 1,798,472 shares of common stock issuable upon the exercise of
     various warrants and 2,068,727 shares of stock issuable upon the exercise
     of stock options. Ms. Cude resigned as an Officer and Director on April 10,
     2008.
(8)  Represents 939,737shares of stock issuable upon the exercise of stock
     options
(9)  Includes 1,200,000 shares of common stock issuable upon the exercise of
     various warrants.
(10) Includes 660,000 shares of common stock issuable upon the exercise of
     various warrants.
(11) Shares were issued to Al-Yousuf LLC of which Mr Al-Yousuf is the President

                                       66
<PAGE>

Equity Compensation Plan Information

We have adopted stock incentive plans to provide incentives to attract and
retain officers, directors, key employees and consultants. We currently have
reserved a total of 30,000,000 shares of our common stock for granting awards,
including 1,500,000 shares under our 1999 Incentive Stock Option Plan,
10,000,000 shares under our 2002 Incentive Stock Option Plan, and 4,000,000
shares under our 2006 Incentive Stock Option Plan and 14,500,000 under our 2007
Stock Incentive Plan. All plans were approved by our shareholders. As of
December 31, 2007, 643,870 shares of common stock had been issued pursuant to
options exercised out of the 2002 plan.

The following table sets forth a description of our equity compensation plans as
of December 31, 2007:

<TABLE><CAPTION>
                                                                                                           Number of securities
                                                                                                          remaining available for
                                                  Number of Securities                                     future issuance under
                                                   to be issued upon          Weighted-average              equity compensation
                                                exercise of outstanding       exercise price of              plans, (excluding
                                                   options and other       outstanding options and        securities reflected in
                          Plan Category                  rights                 other rights                    column (a))
         -------------------------------------  -----------------------    -----------------------        -----------------------
<S>                                                    <C>                          <C>                          <C>
                                                          (a)                        (b)                            (c)
         Equity compensation plans
         approved by security holders                  15,500,000                   $1.03                          157,194

         Equity compensation plans
         not approved by security holders              14,500,000                   $1.02                        8,463,658

         Total                                         30,000,000                   $1.03                        8,620,852
</TABLE>



                                       67
<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE

(8) RELATED PARTY TRANSACTIONS

Consulting Agreement
--------------------

On September 1, 2007, the Company and Mr. Albert Lam, who became a director of
the Company, in October 2007 entered into an Independent Consulting Agreement
("Consulting Agreement"). Pursuant to the Consulting Agreement, Mr. Lam was to
consult and advise the Company in the areas of Chinese manufacturing,
facilities, tooling, financing, and contract negotiations on an independent
consultant basis. Mr. Lam's compensation under the Consulting Agreement was:
200,000 shares of the Company's common stock valued at $194,000, issued under
the Company's 2007 Consultant Stock Plan (the "Plan"); a warrant to purchase
200,000 shares of the Company's common stock valued at $131,000, expiring five
years after grant, with an exercise price of $1.00 per share, issued under the
Plan; and a warrant to purchase 1,000,000 shares of the Company's common stock
valued at $654,000, expiring five years after grant, with an exercise price of
$1.00 per share and a net exercise provision.

The Consulting Agreement expired on September 30, 2007, and expense totaling
$979,000 related to the consulting agreement was recorded in the third quarter
of 2007.

On October 22, 2007, the Board of Directors ("Board") of ZAP ("Company")
appointed Albert Lam as a director of the Company.

Consulting services and other services
--------------------------------------

In September of 2006, the Company canceled a shareholder note of $56,000 due by
the cousin of Steven Schneider, the CEO of ZAP in exchange for consulting
services.

Rental agreements
-----------------

The Company rents office space, land from its CEO and major shareholder. These
properties are used to operate the car outlet and to store inventory. Rental
expense was approximately $84,000 and $96,500 for the years ended December 31,
2007 and 2006, respectively.

Inventory Purchase
------------------

In December 2005, the Company purchased inventory from a related entity where
one of ZAP's officers and Directors is also members of its Board of Directors.
The transaction resulted in a payable due to the related Company of $204,000 at
December 31, 2006. During the fourth quarter of 2007, most of the inventory was
disposed of at minimal liquidation value with the payable also written-off.

Sale of Portable Energy Product Line
------------------------------------

In March 2008, ZAP signed an agreement with Al-Yousuf LLC for the sale of the
portable energy product line for $1,000,000 in exchange for a 50% ownership in a
new company. Ebal Al Yousuf , who is a director of ZAP, is also the President of
Al-Yousulf LLC.

DIRECTOR INDEPENDENCE

The following directors are independent directors as that term is defined under
NASDAQ Rule 4200(a)(15):

Albert Lam, except for Detroit Electric Joint Venture where he is the CEO
Peter Scholl
Eqbal Al Yousuf

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<PAGE>

ITEM 13.  EXHIBITS.

EXHIBITS.

2.1       Approved Second Amended Plan of Reorganization, dated as June 20,
          2002. (5)

3.1       Amended and Restated Articles of Incorporation. (4)

3.2       Certificate of Determination of Series SA Convertible Preferred Stock.
          (14)

4.1       Form of common share purchase warrant of the Company held by Fusion
          Capital Fund II, L.P. (6)

4.2       Form of Series B common stock purchase warrant of the Company. (14)

4.3       Form of Series K common stock purchase warrant of the Company. (14)

10.1      Settlement Agreement Between ZAPWORLD.COM, Ridgewood ZAP, LLC, and the
          Shareholders dated June 27, 2001. (3)

10.3      2004 Consultant Stock Plan. (7)

10.4      Convertible Promissory Note, dated April 26, 2004, issued to Banks
          Living Trust. (1)

10.5      Purchase and Sale Agreement dated March 7, 2003 between ATOCHA Land
          LLC and ZAP. (3)

10.6      Promissory Note $2,000,000 - Atocha Land LLC and ZAP. (3)

10.7      Warrant Agreement dated April 26, 2004, issued to Banks Living Trust.
          (1)

10.8      Common Stock Purchase Agreement between ZAP and Fusion Capital Fund
          II, LLC. (6)

10.9      Registration Rights Agreement between ZAP and Fusion Capital Fund II,
          LLC. (6)

10.10     Form of Common Stock Purchase Warrant between ZAP and Fusion Capital
          Fund II, LLC (6)

10.11     Agreement for Consulting Services with Evan Rapoport dated January 8,
          2004. (1)

10.12     Asset Purchase Agreement dated April 12, 2004 with Jeffrey Banks for
          purchase of various autos (1)

10.13     Agreement for Private Placement Investment received dated April 14,
          2004 with Phi-Nest Fund LLP (1)

10.14     Consulting Agreement dated April 21, 2004 with Elexis International(1)

                                       69
<PAGE>

10.15     Consulting Agreement dated April 21, 2004 with Sunshine 511 Holdings
          (1)

10.16     Definitive Stock Agreement dated October 25, 2004 with
          Smart-Automobile, LLC (2)

10.17     Master Distribution Agreement between Apollo Energy Systems, Inc. and
          Voltage Vehicles Corporation, a subsidiary of ZAP. (8)

10.18     ZAP Floor Line and Dealer Development Agreement with Clean Air Motors,
          LLC for a $45 Million Floor Plan Line of Credit for Qualified ZAP
          Dealers (9)

10.19     Exclusive Purchase, License and Supply Agreement between Smart
          Automobile, LLC and ZAP. (10)

10.20     Amendment dated November 15, 2004 to previous consulting agreement
          with Sunshine Holdings 511 (14)

10.21     Secured Promissory Note Payable dated December 30, 2004 with Phi-Nest
          Fund, LLP. (14)

10.22     ZAP assignment of 2.9 million shares of Restricted Common Stock to
          Phi-Nest Fund, LLP as collateral on note payable (14)

10.23     Promissory note receivable dated January 6, 2005 for $1 million loan
          due from Smart Automobile, LLC and Thomas Heidemann (President Smart
          Automobile, LLC) (14)

10.24     Security Agreement dated January 6, 2005 from Smart Automobile, LLC
          and Thomas Heidemann (President Smart Automobile ,LLC) to secure loan
          above. (14)

10.25     Common Stock Purchase Agreement between ZAP and Platinum Partners
          Value Arbitrage Fund LP (14)

10.26     Form of Common Stock Purchase Warrant between ZAP and Platinum
          Partners Value Arbitrage Fund LP (14)

10.27     Common Stock Purchase Agreement between ZAP and Lazarus Investment
          Partners LLP (14)

10.28     Form of Common Stock Purchase Warrant between ZAP and Lazarus
          Investment Partners LLP (14)

10.29     Termination of Common Stock Purchase Agreement between ZAP and Fusion
          Capital Fund II, LLC (11)

10.30     Financing Agreement between ZAP and Surge Capital II, LLC (12)

10.31     Exclusive Purchase, License, and Supply Agreement between ZAP and
          Obvio! Automotoveiculos S.P.E. Ltda (13)

10.36     Agreement dated July 14, 2006 between ZAP, Thomas Heidemann and Smart
          Automobile (15)

10.37     Amendment Agreement Dated August 30, 2006 between ZAP and Smart
          Automobile LLC (16)

10.38     Exclusive Distribution Agreement dated May 1, 2005, as supplemented by
          a letter dated June 9, 2006 (17)

10.39     ZAP Guarantee (18)

10.40     Shandong Jindalu Vehicle Co., Ltd. Guarantee (19)

10.41     Joint Venture Negotiations dated September 21, 2006 (20)

10.42     Security Purchase Agreement between ZAP and Certain Institutional
          Investors (21)

                                       70
<PAGE>

10.43     Purchase and Amendment Agreement between ZAP and Certain Institutional
          Investors (22)

10.44     Form of Convertible

10.45     Form or Warrant

10.46     Purchase order from the Electric Vehicle Company, LLC ("EVC") for
          10,000 of its Xebra 2007 model year electric vehicles

10.47     Distribution agreement this week with PML FlightLink Limited (PML) for
          the purchase of an advanced wheel motor and control system

10.48     Joint Venture Agreement with Youngman Automobile Co., Ltd to
          manufacture, market and distribute electric a and hybrid vehicles for
          the worldwide passenger car, truck and bus

10.49     Form SB-2 Registration of Common Stock incorporated by reference to
          SEC filing on September 24, 2007 effective on October 2, 2007.

21.1      List of subsidiaries. (3)

23.1      Consent of Independent Registered Public Accounting Firm (Odenberg,
          Ullakko, Muranishi & Co. LLP). (14)

31.1      Certification of Principal Executive Officer pursuant to Rule
          13a-14(a)/15d-14(a) of the Exchange Act, as Adopted Pursuant to
          Section 302 of the Sarbanes-Oxley Act of 2002. (14)

31.2      Certification of Principal Financial Officer pursuant to Rule
          13a-14(a)/15d-14(a) of the Exchange Act, as Adopted Pursuant to
          Section 302 of the Sarbanes-Oxley Act of 2002. (14)

32.1      Certification of Principal Executive Officer Pursuant to 18 U.S.C.
          Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
          Act of 2002. (14)

32.2      Certification of Principal Financial Officer Pursuant to 18 U.S.C.
          Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
          Act of 2002. (14)

(1)    Previously Filed as an exhibit to the Registrants's Form 8-K for the
       quarter ended March 31, 2004 and incorporated by reference.
(2)    Previously filed as an exhibit to the Registrant's Form 8-K of November
       6, 2004 and incorporated by reference.
(3)    Previously filed as an exhibit to the Registrant's Annual Report on Form
       10-KSB for the year ended December 31, 2003 and incorporated by
       reference.
(4)    Previously filed with Pre-effective Amendment Number 3 to Form SB-2
       registration statement filed with the Securities and Exchange Commission
       on October 3, 2001.
(5)    Previously filed as an exhibit to the Registrant's Form 8-K of October
       20, 2002 and incorporated by reference.
(6)    Previously filed as an exhibit to the Registrant's Current Report on Form
       8-K dated July 22, 2004 and incorporated by reference.
(7)    Previously filed as an exhibit to the Registrant's Registration Statement
       on Form S-8 (File No. 333-117560) on July 22, 2004.
(8)    Previously filed as an exhibit to the Registrant's Current Report on Form
       8K filed with the Securities and Exchange Commission on October 6, 2004
       and incorporated herein by reference.
(9)    Previously filed as an exhibit to the Registrant's Quarterly Report on
       Form 10QSB for the period ended June 30, 2004 and incorporated herein by
       reference.
(10)   Previously filed as an exhibit to the Registrant's Current Report on Form
       8K filed with the Securities and Exchange Commission on April 21, 2004
       and incorporated herein by reference.
(11)   Previously filed as an exhibit to the Registrant's Current Report on Form
       8K filed with the Securities and Exchange Commission on February 25, 2005
       and incorporated herein by reference.

                                       71
<PAGE>

(12)   Previously filed as an exhibit to the Registrant's Current Report on Form
       8K filed with the Securities and Exchange Commission on September 16,
       2005 and incorporated herein by reference.
(13)   Previously filed as an exhibit to the Registrant's Current Report on Form
       8K filed with the Securities and Exchange Commission on September 21,
       2005 and incorporated herein by reference.
(14)   Previously filed as an exhibit to the Registrant's Yearly Report on Form
       10KSB for the period ended December 31, 2004 and incorporated herein by
       reference.
(15)   Previously filed as an exhibit to the Registrant's Current Report on Form
       8K filed with the Securities and Exchange Commission on July 20, 2006 and
       incorporated herein by reference.
(16)   Previously filed as an exhibit to the Registrant's Current Report on Form
       8K filed with the Securities and Exchange Commission on September 6, 2006
       and incorporated herein by reference.
(17)   Previously filed as an exhibit to the Registrant's Current Report on Form
       8K filed with the Securities and Exchange Commission on November 6, 2006
       and incorporated herein by reference.
(18)   Previously filed as an exhibit to the Registrant's Current Report on Form
       8K filed with the Securities and Exchange Commission on November 6, 2006
       and incorporated herein by reference.
(19)   Previously filed as an exhibit to the Registrant's Current Report on Form
       8K filed with the Securities and Exchange Commission on November 6, 2006
       and incorporated herein by reference.
(20)   Previously filed as an exhibit to the Registrant's Current Report on Form
       8K filed with the Securities and Exchange Commission on November 6, 2006
       and incorporated herein by reference.
(21)   Previously filed as an exhibit to the Registrant's Current Report on Form
       8K filed with the Securities and Exchange Commission on December 11, 2006
       and incorporated herein by reference.
(22)   Previously filed as an exhibit to the Registrant's Current Report on Form
       8K filed with the Securities and Exchange Commission on February 26, 2007
       and incorporated herein by reference.

ITEM 14.  PRINCIPAL ACCOUTANT FEES AND SERVICES.

Audit and Non-Audit Fees

     The following table presents fees for professional audit services rendered
by Bagell Josephs,Levine & Co. LLP for the audit of the Company's annual
financial statements for the year ended December 31, 2007, and Odenberg,
Ullakko, Muranishi & Co. LLP for the audit of the Company's annual financial
statements for the year ended December 31, 2006, and fees billed for other
services rendered by Odenberg, Ullakko, Muranishi & Co. LLP during this period.

                                               2007              2006
                                           ------------      ------------
         Audit fees:(1)                      $133,000          $237,000

         Audit-related fees: (2)                 -               10,000

         Tax fees:(3)                            -                 -

         All other fees:(4)                      -                 -
                                           ------------      ------------
         Total                               $133,000          $247,000
                                           ============      ============

(1)     Audit fees include fees invoiced for the audit of the Company's annual
        financial statements and the quarterly reviews of these statements, as
        well as fees for consultation regarding accounting issues and their
        impact on or presentation in the

                                       72
<PAGE>

        Company's financial statements.
(2)     This category includes fees billed for assurance and related services
        that are reasonably related to the performance of the audits or reviews
        of the financial statements and are not reported under "Audit Fees," and
        generally consist of fees for due diligence in connection with
        acquisitions, registration statements, accounting consultation and
        audits of employee benefit plans.
(3)     This category includes fees billed for professional services rendered by
        the independent auditors for tax compliance, tax planning and tax
        advice. (4) The Company generally does not engage Bagell, Josephs,
        Levine & Company, LLC for "other" services.

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Public Accounting Firm

The Audit Committee's policy is to pre-approve all audit and permissible
non-audit services provided by the independent auditors. These services may
include audit services, audit-related services, tax services and other services.
Pre-approval is generally provided for up to one year and any pre-approval is
detailed as to the particular service or category of services and is generally
subject to a specific budget. The independent auditors and management are
required to periodically report to the Audit Committee regarding the extent of
services provided by the independent auditors in accordance with this
pre-approval, and the fees for the services performed to date. The Audit
Committee may also pre-approve particular services on a case-by-case basis.

                                       73
<PAGE>

                                   SIGNATURES

                In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                                       ZAP

                                       By: /s/ Steven M. Schneider
                                           -------------------------------------
                                           Steven M. Schneider
                                           Chief Executive Officer
                                           (principal executive officer)

                                       Date: April 11, 2008




 In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

<TABLE><CAPTION>
             Name                              Position                                Date
             ----                              --------                                ----
<S>                                 <C>                                           <C>

By: /S/ STEVEN M. SCHNEIDER         Director and Chief Executive Officer          April 11, 2008
    -----------------------         (principal executive officer)
    Steven M. Schneider


By: /S/ GARY STARR                  Chairman of the Board of Directors            April 11, 2008
    -----------------------
    Gary Starr


By: /S/ WILLIAM HARTMAN             Chief Financial Officer                       April 11, 2008
    -----------------------         (principal financial and accounting
    William Hartman                 officer and Secretary)


By: /S/ Amos Kazzaz                 Chief Operating  Officer                      April 11, 2008
    -----------------------
    Amos Kazzaz


By: /S/ Eqbal Al Yousuf             Director                                      April 11, 2008
    -----------------------
    Eqbal Al Yousuf


By: /S/ Albert Lam                  Director                                      April 11, 2008
    -----------------------
    Albert Lam


By: /S/ Peter Scholl                Director                                      April 11, 2008
    -----------------------
    Peter Scholl

</TABLE>

                                       74